Tax Reporting

Minimize your audit risk and gain the best tax outcomes in the purchase, sale, or transfer of your business interests. Adams Capital has built an exemplary reputation on providing timely and precise financial council and establishing the fair market value of businesses. Tapping into more than 90 combined years of work and successes testifying in tax courts, we’ll help you to know the right questions to ask and the best processes to take in your tax reporting efforts.

Closely Held Business Valuation

The accurate valuation of a closely held business is essential when resolving issues related to management planning, stock transactions, estate planning, tax planning, business disputes, or divorce settlements. Adams Capital will help you select the most appropriate valuation approach based on a particular engagement’s circumstances:

  • Asset approach based on the value of your assets and liabilities
  • Income approach based on your ability to generate cash flow in the future
  • Market approach based on the value of similar companies that publicly traded or recently have been involved in a transaction
Our valuation conclusions provide you with support to help you make well-informed decisions regarding the purchase, sale, or transfer of interests in your closely held business. We bring backgrounds in finance, accounting, taxation, and law, experience with over 2,000 public and private transactions, and success defending valuation conclusions in court and before the IRS. You can rely on us for credible and supportable valuation conclusions.

Discount & Premium Studies

The selection and support of discounts and premiums can be the most important and difficult task in valuation. Discounts are typically applied for attributes such as lack of control (minority interest) and lack of marketability (based on lack of a ready market or restrictions on sale or transfer). Premiums are often applied for a majority interest or ability to control.

A valuation expert will apply instinct, experience, and timely, exhaustive research to guide you toward an appropriate discount selection. Successful research requires:

  1. Identifying the relevant studies to support (or refute) the choice of discounts or premiums
  2. The correct interpretation and communication of those studies to the valuation subject

Adams Capital combines considerable experience, knowledge of legal precedents and IRS guidelines, and a comprehensive database of timely and relevant research. We update and evaluate the database constantly to identify trends and those studies that are most applicable to our clients’ particular circumstances.

We also conduct proprietary research and review markets for discounts related to marketability. The combination of experience, research, and perspective supports our clients’ discount and premium conclusions and helps them meet regulatory requirements.

Equity & Stock Option Compensation

Many companies reward employees with stock options or bonus shares, which are taxable on issuance or at exercise. The value of options must be disclosed in proxy statements and financial statement footnotes.

Two primary regulations apply to the issuance of employee stock options, IRC 409A and ASC 718.

IRC 409A states the exercise price of an option must be greater than or equal to the fair market value of the underlying stock to qualify as deferred compensation and avoid significant tax penalties. For privately held companies, determining the fair market value of the common stock often requires an independent valuation. Subtracting preferred stock as debt is not accepted except in very specific circumstances, which can complicate the process for companies that have equity classes besides common stock.

For ASC 718, the fair value of any stock-based compensation, including employee stock options, restricted stock, and management preferred stock must be expensed. Outside of determining the appropriate common stock value for the issuance of employee stock options, Adams Capital can assist with the determination of fair value for any stock-based compensation for ASC 718 purposes.

Employee Stock Ownership Plans

Employee Stock Ownership Plans (“ESOP”) valuation is a complex matter and must consider each company’s unique facts and circumstances.

Introduced in 1974 as part of the Employee Retirement Income Security Act (“ERISA”), ESOP is a vehicle to motivate employees with company ownership. An ESOP is structured as a legal trust and classified as a qualified retirement plan under the Internal Revenue Code. A trustee serves in a fiduciary capacity solely in the interest of the ESOP and its participants. Retaining an experienced, independent appraisal firm in the valuation of the closely-held employer securities is paramount in satisfying the trustee’s fiduciary responsibilities.

Valuations for ESOP purposes are necessary for two reasons:

  1. When the ESOP is formed, the initial purchase must be priced fairly
  2. The shares owned must be re-valued annually to determine the repurchase price in the event of employee retirement, departure, disability, or death

​ERISA requires an ESOP to pay no more than “adequate consideration” (fair market value) when investing in a businesses’ equity. Plan trustees and fiduciaries determine the fair market value in good faith. ESOP valuation assertions are then scrutinized by the IRS, ESOP trustees, and the Department of Labor.

Because of these many issues, an appropriate ESOP valuation must be well documented, unbiased, and supportable. Adams Capital has substantial experience with valuing businesses and providing financial advisory services for ESOP plan trustees.

Gift & Estate Tax Valuation

Estate planning is essential for distributing personal assets in the most desirable manner. All gifted or bequeathed assets must be assigned a value for federal transfer tax purposes. Determining the value of those assets is a vital part of the estate planning process. The IRS scrutinizes these estate and gift planning techniques intensely. Undervalued assets may be subject to tax penalties. A valuation that is performed in good faith by a competent independent third party appraiser is more likely to be said to have a “reasonable basis” and therefore is less subject to penalties. Family Limited Partnerships (“FLPs”) are popular tools for estate planning. FLPs maximize family wealth while centralizing control of family assets for efficient management. When determining the fair market value of limited partnership interests, the market considers the following factors:

  • Illiquidity
  • Lack of marketability
  • Lack of control
  • Market absorption (Blockage)
Combining an FLP vehicle with appropriate discounting can reduce the estate and gift tax burden on asset transfers between family members. (A “discount” is the difference between the fair market value of a limited partnership interest and the value of a limited partner’s pro rata portion of the partnership’s net asset value.) Other commonly used estate planning techniques include:

  • Charitable remainder trusts
  • Charitable lead trusts
  • Private foundations
  • Private annuities
  • Generation-skipping trusts
  • Grantor-retained trusts (GRAT)
  • Annuity trusts

​Adams Capital balances expertise with the valuation of assets for gift and estate tax planning with relevant information about transactions and quantitative discount models to determine the fair market value of partnership interests. We will work closely with your legal and financial advisors to ensure that our work is conducted in a professional, timely, and economical manner.

Personal & Enterprise Goodwill

It can be challenging to assess enterprise value when the enterprise may be entirely dependent on a single person for continued success. If you are determining the difference between personal goodwill and enterprise goodwill, two attributes are important for segregating value between a person and an enterprise.

Personal Goodwill is directly associated with an individual. Consumers seek out the individual, are referred to the individual, or repeat patronage due to the individual.

Enterprise Goodwill is directly associated with the business. Consumers seek out the enterprise, are referred to the enterprise, or repeat patronage due to the enterprise.