Valuation Analysis and Reports. Valuations differ in scope and intent. The end product of value consulting, in terms of scope and cost, will depend on the purpose of the service and its ultimate use.
In some cases the information will be used for internal purposes and the end product can be designed to economically meet those informal needs. The contemplation of a business acquisition or sale often creates a unique need for value consulting that extends beyond the formal valuation requirements.
Other times a comprehensive, formal appraisal report is needed to withstand government or other third party scrutiny. A business valuation designed to meet Internal Revenue Service regulation requirements is a good example, and more are provided below.
Karlsons & Associates, LLC offers valuation analysis and reports for a variety of purposes, including:
The scope of the valuation will vary, depending on the stage of the planning process. An estimate of value might be more appropriate in the initial attempt of organizing and evaluating the overall ownership of assets. At the stage of wealth transfer, however, the scope of the valuation should result in a report that is well-reasoned and documented in order to support any potential challenge.
Partnering with an experienced business appraiser can also help ensure that the gift transfer is “adequately disclosed” in accordance with the strict IRS regulations that start the clock on the safe harbor rule limiting the time in which the value of the transfer can be examined.
From an estate planning point of view, one of the most attractive aspects of using a Family Limited Partnership is the availability of valuation adjustments or discounts to reduce the value of limited partnership interests that are gifted to family members or trusts for the benefit of family members.
An example of such a value adjustment is the lack of marketability discount created by the presence of severe limitations in the marketability of closely-held shares. The business appraiser must examine the specifics of the interest being transferred, the partnership, its performance and the degree to which that performance is returned to partners in terms of distributions in order to determine the applicability of discounts and/or the size of those discounts. This examination is critical, because if discounts are too low, they will substantially reduce the estate planning benefits. However, if the discounts are inappropriately high, the investor runs a significant risk of incurring large amounts of back taxes and penalties to the IRS, as well as incurring legal and accounting fees.
We can also assist the legal team in crafting the buy-sell agreement so that the document is worded clearly to avoid valuation ambiguity. This often includes establishing a standard value that properly reflects the intent of the parties under agreement.
Under ASC Topic 805, the fair value of the business interest (or assets) acquired is determined, and the fair value of the consideration paid in the acquisition is allocated to the identifiable tangible and intangible assets acquired. In some cases the valuation of contingent consideration is required as part of this analysis.
Under ASC Topic 350 (formerly SFAS 142) goodwill and indefinite lived intangible assets must be periodically tested for impairment using a two-step process to test and measure impairment of goodwill. The testing must be conducted at the reporting unit level (the lowest level of the entity).
Fair value measurements can be complex, and management will often engage an independent valuation firm to perform these measurements, particularly when an independent opinion is required.
When valuing intangible assets, the conclusion of value will be based in one form or another on the cash flow this property could reasonably be expected to produce in the future and the risk associated with that projected cash steam.
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