Tax Liability – Three Examples of How Business Valuations Matter

Apr 14, 2023

It’s that time of year when taxes are top of mind. No one wants to pay more than is required. Business valuations can have a significant impact on tax liability and IRS compliance. Read a few examples below of the importance experience and expertise have in achieving the desired outcome.

1. The Risk of Double Taxation

Eight owners of a C-corporation were preparing to sell the business. The transaction was at risk as its structure as an asset-based sale put the owners at risk of significant tax liability in the form of double taxation.

The owners needed a business valuation to determine fair market value and total goodwill to restructure the deal and minimize tax liability. Lou Pereira developed the business valuation and then built a multi-variate model to calculate each owner’s goodwill. With the valuation, modelling, and analysis completed by Merrimack Business Appraisers, the deal was restructured, and double taxation was avoided.

Read the case study.

2. Compliance with IRS Section 409 and Reducing Tax Liability

Like many businesses, attracting and retaining talent was a priority for this rapidly growing company on the west coast. This company was experiencing hypergrowth and included in its compensation package stock grants to attract professional executive managers.

The firm’s owners contacted Lou Pereira to develop a business valuation of the stock to comply with IRS Section 409A. Lou’s methodical and thorough valuation substantiated the value determination, satisfying the stringent requirements for Section 409A compliance.

Please read more about how the tax liability for the company was reduced.

3. A Sale & Donating Shares to Charity to Minimize Tax Liability

Two owners of a business decided to sell their business. One of the owners wanted to donate proceeds from the sale to charity to minimize his tax liability. To the average person, this may appear straightforward, but Lou Pereira was fully aware of the IRS requirements for charitable contributions. Incorrect sequencing and timing of actions could result in the IRS disallowing the charitable donation as part of the sale.

Lou Pereira prepared the business valuation, including determining the value associated with the shares donated to charity. The sale was completed and all actions were executed for the seller to achieve his goal of securing the tax deduction, minimizing tax liability and supporting the charity of his choice.

Please read more about this case.

Contact a proven certified business appraiser to prepare a thorough and objective business valuation that can stand up to scrutiny, including the IRS.

When Values Matter. Expertise Matters.

Contact us.