Business Valuation and Taxes:
Procedure, Law, and Perspective
by David Laro and Shannon P. Pratt
450 pages; hardcover; $85.00
John Wiley & Sons, Inc.
Hoboken, New Jersey, 2005
ny CPA/ABV preparing a business valuation (BV) has undoubtedly heard of U.S. Tax Court Judge David Laro and valuation pioneer Shannon Pratt. Judge Laro has ruled on several noteworthy cases, including the landmark Mandelbaum v. Commissioner decision on lack of marketability discounts, and Pratt’s extensive writings practically invented the BV profession. In Business Valuation and Taxes: Procedure, Law, and Perspective, Laro and Pratt join their considerable talents to offer an overview of what’s involved in a business valuation, particularly from a fair market value premise, the primary method for federal tax purposes.
The book offers important perspectives on current issues in clear, easy-to-understand language. It covers key factors, from the qualifications needed to be a BV analyst to determining discounts for business shares and everything in between. Topics include standards of business valuation; sources of law; how the type of entity affects valuation and handling tax provisions on built-in gains; international transactions and transfer pricing; financial statement adjustments and comparative analysis; economic and industry analysis; income-, market- and asset-based valuation approaches; the many types of control discounts; option valuations; what should be included on a business appraisal report; vetting procedures valuation analysts encounter; collaborative activities; and burden of proof, penalties and sanctions.
Each chapter of Business Valuation and Taxes has a summary, a discussion (most with abstracts from relevant cases), an analysis and a conclusion to consider. Many chapters include a checklist, appendix and bibliography. Among the high points, the book
Covers S corporation minority interest valuations from four distinct viewpoints and discusses the market approach to business valuation in depth. Both topics are hot-button issues and the information here is authoritative.
Covers questions BV analysts are likely to be asked by an attorney—an excellent checklist for any expert witness. The questions were culled from successful courtroom challenges to experts’ credentials.
Describes, in a particularly succinct way, the valuation of international transactions—an area that is important for more than valuations. The concepts behind transfer pricing also have bearing on the way companies make their money and price their products.
When preparing for valuations that will be used in tax matters, diligence dictates that CPA/ABVs read the relevant cases, briefs and collateral material and articles on points on which they want to concentrate. Business Valuation and Taxes is a useful guide to techniques and procedures for organizing a valuation engagement and should be added to that preparatory list. Its key tax rulings, presented in full, make it a valued reference source. Judge Laro says he needs experts in his court to prepare reports that are relevant, credible and reliable— qualities that constitute a proper description of this book.
Edward Mendlowitz, CPAABVPFS is a shareholder in WithumSmith+Brown in New Brunswick, N.J. He is the author of 12 books and the 2001 Lawler Award winner for best Journal of Accountancy article. His e-mail address is firstname.lastname@example.org .