Situation
Two business owners were selling their interests in a business and had in place a strategy to minimize tax liability and contributing significant proceeds from the sale to charities. One of the sellers hired Lou Pereira, President of Merrimack Business Appraisers, to ensure he had a business valuation professional who understood the complexities of such a transaction and could advise on the important timing sequence to achieve his goals of a tax deduction for the charitable donation.
At first glance, the business valuation work to value the owner’s interest in the business being sold while donating a percentage of the shares to charity may seem quite straightforward: value the shares, allocate some of the shares that will be donated to the charity. The buyer buys the defined percentage from the seller and buys the defined percentage of shares from the charity. Deal is done and tax strategies and charitable donations for the seller are achieved. The reality is there are important nuances that are critical to understand and execute correctly or the seller’s tax deduction goals will not be achieved.
If the sequencing of the associated transactions are not sufficiently spaced out, the IRS may disallow the charitable donation as part of the sale of the business.
Merrimack Business Appraisers’ Approach
As one of fewer than 12 Certified Business Appraisers in New England, Lou Pereira has the expertise to fully understand the business valuation calculation of the shares for charity as well as knowing the specific IRS requirements related to charitable contributions. The valuation of the business, the associated shares donated to charity, and the timing of the transactions were completed and executed in a manner to ensure the intended goals were achieved.
Valuation Outcome
The result was the seller secured the desired tax deduction, significantly reduced his tax liability, and accomplished his goal of making a substantial donation to a charity of his choice.
Contact Us
Situation
An elderly man passed away and his estate needed to be settled. The man had been an active entrepreneur and led the management of ten businesses in related industries. A CPA who had been involved in some of the accounting work for the businesses contacted Lou Pereira, President of Merrimack Business Appraisers, to participate in the vetting process of selecting a business valuation expert.
Six attorneys led the evaluation to select a business valuations professional for this complex valuation need. Some of the ten businesses had different and multiple business partners. Financial statements and tax returns were inconsistent and incomplete and would require careful analysis and adjustment for each of the business entities to calculate total valuation and ownership interest to settle the estate. The attorneys, the decision makers in selecting the business valuation expert, conducted interviews to assess business valuation professionals and their track record, process, and relevant industry experience.
The vetting process concluded and Lou Pereira was hired.
Merrimack Business Appraisers’ Approach
- Lou Pereira methodically and thoroughly analyzed and adjusted the financial statements for each of the ten businesses, removing incorrect data and accounting for missing information over the years, based on available information.
- The information gathering process included interviewing current employees.
- The valuation of each business was determined and documented to then determine ownership interests including the decedent’s valuation based on shares.
Valuation Outcome
The valuation of the decedent’s interests in each of the ten businesses was determined to then settle the estate.
When Values Matter, contact a proven and certified business appraiser.
Contact Us
Situation
A business valuation was needed for tax filings to settle an estate where one fractional owner of an LLC had passed away. The LLC owned the lease for the mineral rights on a one-acre lot in North Dakota.
Merrimack Business Appraisers’ Approach
- Lou Pereira, President of Merrimack Business Appraisers, secured the expertise of an engineer to calculate the quantity of minerals, in this case oil and gas, that could be extracted from the North Dakota property.
- Lou developed the valuation to include forecasted future prices of oil and gas; then applied the discounted cash flow method.
- A thorough and detailed valuation of the business and the value of the fractional ownership was completed for settlement of the estate.
Valuation Outcome
Without the proper engineering and business valuation expertise, the business valuation of the fractional ownership of an LLC that included owning just the lease for the mineral rights on a one-acre lot in North Dakota could have been dramatically more, incurring greater tax consequences.
When it comes to business valuations, having a certified valuation professional who offers a proven process matters.
Contact Us
Situation
Multiple partners owned a business that was organized into several entities. They had a sale pending with a strategic acquirer. One owner sought to donate shares to a charitable organization, and he needed expertise to plan for the sale transaction while achieving his goals, and also while complying with IRS requirements.
Merrimack Business Appraisers’ Approach
Lou Pereira’s specialties include preparing business valuations involving fractional ownership interests and complying with IRS requirements.
For the individual entities and the overall entity, Pereira prepared the business valuation, which included determining the fractional valuation for this owner and the dollar value of the charitable donation to be made. Pereira calculated the number of shares that would be donated to the charity, and then the strategic buyer would purchase those shares as part of the sale of the business.
Time was of the essence because there was a deal pending. Pereira worked diligently to ensure that the valuation was completed on the necessary schedule to close the deal.
Valuation Outcome
The sale of the business was completed without delay and the owner’s charitable contribution complied with IRS requirements.
Situation
Experiencing hypergrowth of 170% in three years, a large, privately-owned group dental practice and Dental Support Organization (DSO) on the west coast was using stock grants to attract and compensate new professional executive managers. The company and a newly-hired officer needed a business valuation of the stock for IRS Section 409A compliance.
Merrimack Business Appraisers’ Approach
Lou Pereira’s methodical and thorough valuation included quantitative and qualitative analysis. By applying an income approach using a discounted cash flow method, he was able to fully explain and substantiate the value determination. In addition, providing a market perspective, with transactions of other high-growth acquisition targets, further supported the valuation. This comprehensive approach was important to ensure that the company would meet the IRS’s stringent requirements for compliance with Section 409A.
Valuation Outcome
Compliance with IRS Section 409A was attained and tax liability for the company was reduced.
Situation
A specialty technical services consulting company was in the process of being sold to another company, but the deal structure threatened its viability. As a C-corporation pursuing an asset-based sale, the eight selling owners faced significant tax liability in the form of double taxation — at the corporate income level and at the shareholder dividend level.
Merrimack Business Appraisers’ Approach
Lou Pereira conducted a complete valuation of the company to determine fair market value, as well as the total amount of goodwill. Through detailed and thorough analysis of each owner’s role and responsibilities, the amount of each individual’s personal goodwill was determined. This involved developing a complex, multi-attribute allocation model incorporating each owner’s level of client contact, total work hours, and billable hours.
Valuation Outcome
As a result of the valuation, analysis, and modeling work, the sale was restructured to allocate part of the purchase price as personal goodwill. This enabled the assets of the corporation and personal goodwill of each individual owner to be sold separately. Avoiding any double taxation.
Situation
The service business, valued at $1.1 million, was an asset sale of a C Corporation and the seller was at risk of significant double taxation on the proceeds. Based on the highly thorough and accurate company valuation done previously for the sale of this business, Merrimack Business Appraisers President Lou Pereira was retained as the certified business appraiser for business valuation services for the tax filing.
Merrimack Business Appraisers’ Approach
Lou Pereira’s comprehensive and detailed business valuation report clearly identified and separated the personal goodwill of the seller, which significantly reduced his tax liability. He applied a multi-variable analysis that qualified and quantified the amount of personal goodwill.
Valuation Outcome
As a result of the company valuation, the seller saved approximately $216,000 in taxes.
