IRS valuation methods lag behind business practice

Article Abstract:

The valuation of a business interest is necessary in resolving a wide variety of issues. Business valuations, for instance, are essential in calculating estate and gift taxes and in settling disputes regarding bankruptcy proceedings and buy-sell agreements. The IRS has issued a number of pronouncements on the valuation of closely held businesses for tax-related purposes. However, commentators view the IRS-prescribed methods as being impractical for many businesses. The formula method proposed by the IRS in the Appeals and Review Memorandum 34 serves as an example of such methods. This approach is totally inappropriate for services businesses which do not consider tangible assests as a significant factor in valuation. Most businesses prefer to use methods other than those recommended by the IRS, including the residual, industry, comparable price and earnings-based methods.

Methods, Close corporations, Valuation, Closely held corporations

---

Definitions of personal service corporations vary

Article Abstract:

The newly issued IRS Ruling, Temp Reg 1.441-4T(e), holds that all the activities included in Section 448(d)(2)(A) are to be considered as performance of personal services. Businesses that have gained the personal service company status have the option to adopt the cash method of accounting and are required to subject all their taxable income to the 34% tax rate and to use the calendar year for its taxable year except in certain cases. Being classified as a personal service corporation may not be favorable for some businesses because the tax benefits available to such corporations have been considerably reduced. The personal service company status may be avoided by changing the activity or ownership of a business, by converting into an S corporation, or by liquidation. Termination of personal service companies is extremely difficult and can be very costly.

PERSONAL SERVICES, Taxation, Professional corporations

---

Tax procedure considerations in Chapter 11 reorgs

Article Abstract:

Chapter 11 of the Bankruptcy Code grants a debtor corporation an automatic stay on tax assessment and collection efforts by the IRS. The automatic stay provisions of the Bankruptcy Code prevent the IRS from taking any action against a debtor corporation that has filed a Chapter 11 petition, but does allow the IRS to ascertain a debtor corporation's postpetition liability. During a Chapter 11 case, the bankruptcy court can be used as a forum to litigate Federal tax and bankruptcy tax issues that may be involved in any planned bankruptcy reorganization of a debtor corporation.

Courts, Powers and duties, Bankruptcy reorganizations, Bankruptcy reorganization, Bankruptcy courts

Similar abstracts:

• Abstracts: Combination can provide flexibility of partnership with S corporation advantages. Business purpose tests issued for tax year changes of partnerships, S corporations
• Abstracts: Trade or business property. New S corporation shareholder rules
• Abstracts: A discrete-valued risk function for modelling financial distress in private Australian companies. The timeliness of half yearly earnings announcements and stock returns
• Abstracts: Swift action is urged on new pensions Act. Treasury management viewed from a private background. Risk ball smashes into council court
• Abstracts: Depreciation and car choice. Exec need shifts gear. Diesel do the job

This website is not affiliated with document authors or copyright owners. This page is provided for informational purposes only. Unintentional errors are possible.