Reasonable compensation is an issue that comes into play in divorce, shareholder disputes and tax cases. It’s also a common financial statement adjustment that valuators make when valuing a business. Although experts are often hired to make the calculations, business owners and attorneys should understand how they do it. Multiple Factors Valuators weigh a variety of factors…
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ESOP Valuations under Increased IRS Scrutiny
An employee stock ownership plan (ESOP) can facilitate the transfer of a business to the owner’s children or employees over a period of years in a tax-advantaged way. However, the IRS recently issued a statement warning businesses about a range of compliance issues related to ESOPs and announcing plans to ramp up compliance enforcement. The IRS…
Financial Statement Adjustments in Valuation
The value of a business isn’t directly determined by its historic performance. Instead, investors are more interested in the economic benefits the business will generate in the future. Past performance is only relevant to the extent that it demonstrates trends and is expected to continue going forward. This forward-looking approach applies whether an appraiser uses the cost,…