FLPs in Tax Court: Emphasizing the Discount for Lack of Marketability (DLOM)

Date: Monday, December 12, 2022
Time: 12:00pm - 1:15pm
Location: MAC 405 Washington Avenue St. Louis, MO 63102
Speaker: Sonia Desai, CPA, ABV, ASA & Will Frazier, ASA (Weaver) - MAC

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Location: MAC downtown in person and available via zoom

Topic: The History of FLPs in Tax Court”

Speakers: William H. Frazier, ASA and Sonia Desai, CPA, ABV, ASA, CBV

About the presentation: Thirteen U.S. Tax Court cases involving valuation issues related to family limited partnerships are reviewed. The opinions, decided between 2000 and 2020, highlight valuation issues but, most specifically, the discount for lack of marketability (DLOM). This metric has never been clearly understood by either the Court or many valuation professionals. The presentation discusses the reasons for this and why, after so many years, quantitative techniques are beginning to overtake the traditional discounting methodology.

From the beginning, taxpayers have justified high discounts due to the very long term life of the FLPS and the commensurately long holding period of the limited partner holder. The IRS has argued for very low discounts claiming that that these holding periods are illusory and that the investments held by the FLPs are usually very low risk. Between 2003 and 2005, four FLP cases highlighted how the Tax Court’s opinion of value had more or less coalesced into a valuation framework that weighed the opposing views of the valuation. To this day, the IRS has generally stuck with discounting parameters of three of these four cases.            

The presentation highlights key points in a number of cases which influenced the Tax Court’s opinions. Some of these lessons relate to mistakes of IRS’ and taxpayers’ appraisers which have regularly been repeated. In other instances, the appraisal work has influenced the Court’s opinion in one case and later adopted by the Tax Court in deciding other opinions.

Notably absent in the historical FLP valuation debate has been the subject of income or cash flow. The conflict has been focused on time and risk. The third leg of the valuation stool, the economic return, has been ignored. An FLP might be compared to an investment portfolio. No analysis of an investment portfolio is complete without an understanding of rates of return.

The presentation will discuss three recent FLP cases which have been substantially influenced by quantitative valuation methods which derive a present value of expected economic returns. In all three cases, the appraisers using the quantitative techniques fared better.

To register for this session, go to www.epcstlouis.org and click the link for the session.

CPA's - CPE Credit Note: In order to be awarded the full credits, you must be responding to three out of the four polling questions asked during the program on ZOOM.

Continuing Education

EPCSTL has requested approval for continuing education in the following areas: CTFA, CLE, CPE, CFP, L&H Insurance   

CPE Information for CPAs

The sponsor assures that the program content and program level is appropriate for the intended participants.

Participants will: 

Learning Objectives:

·         Obtain an overview of U.S. tax court cases involving the valuation of family limited partnerships (FLPs)

·         Discuss discounts for lack of marketability (DLOM) and opposing IRS and taxpayer perspectives

·         Understand quantitative techniques in determining DLOMs vs. traditional discounting methodology

·         Discuss factors influencing DLOMs and the relative importance of economic returns

The sponsor assures that the program content and program level is appropriate for the intended participants.

Participants will earn 1 CPE credit. 

Field of Study: Specialized Knowledge 

Additional Information:

Delivery Method: Group Live/Group Internet Based

Program Level: Basic

Pre-requisite: NONE 

Who should attend: This presentation is aimed at lawyers, accountants, trust officers and other estate planning professionals with a background in estate planning topics.

Refunds and Cancellations: All attendees are required to register in advance.  If you reserve and are unable to attend, please cancel your reservation at least 24 hours in advance of the meeting to receive a refund or a credit for a future meeting. For more information regarding refund, complaint, and/or program cancellation policies please contact our offices at 314-520-3564.

Estate Planning Council of St. Louis is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of accountancy have final authority on the acceptance of individual courses for CPE credit. Complaints regarding registered sponsors may be submitted to the National Registry of CPE Sponsors through its website: www.nasbaregistry.org.

National Registry of CPE Sponsors Number 109467

CTFA

CTFA 1.25 CE credit 

CFP Learning Objectives

·         Obtain an overview of U.S. tax court cases involving the valuation of family limited partnerships (FLPs)

·         Discuss discounts for lack of marketability (DLOM) and opposing IRS and taxpayer perspectives

·         Understand quantitative techniques in determining DLOMs vs. traditional discounting methodology

·         Discuss factors influencing DLOMs and the relative importance of economic returns

Bios:

William H. Frazier, ASA, has over 40 years of experience in valuation, investment banking, mergers and acquisitions, and litigation advisory services. For the last 15 years, Will's career focus has included valuing family-owned businesses and holding entities, such as family limited partnerships. He has performed valuations for estate and gift taxation, fairness/solvency opinions, bankruptcy and reorganization, disputes related to business transactions and shareholder disputes, family law matters, purchase and sale advisement, employee stock ownership plans, equity compensation, financial reporting, and other litigation, tax and corporate matters. Additionally, Will has served as an expert witness and appraiser in several U.S. Tax Court cases.

Will is a senior member of the American Society of Appraisers (ASA) and former chair of the Government Relations Committee, former treasurer and secretary of the Business Valuations Committee (BVC) and head of ASA’s Task Reform Task Force. From 2008-2011, Will served on the Internal Revenue Service Advisory Council (IRSAC) where he was assigned to the Office of Professional Responsibility. He is currently a member of the Standards Sub-committee of the BVC and is the BVC’s liaison to the Government Relations Committee. He has authored numerous articles on the subject of business valuation for professional and business publications. Will is a frequent speaker and program presenter on the subject of estate and gift tax valuation.

Sonia Desai, CPA, ABV, ASA, CBV, is a partner in the Forensics and Litigation Services and Valuation Services practices at Weaver; she leads the Valuation Services practice in our Austin office. Sonia has over 18 years of experience in valuation, litigation, investigations and audit, including serving as an expert witness. She combines her experience in valuation and litigation to provide expert witness services involving valuation of closely held businesses and equity ownership, such as in shareholder and partner disputes, family law and commercial disputes. Sonia also has significant experience in advising clients on the value of assets and business interests for estate and gift tax planning, mergers & acquisitions and financial reporting. Her experience spans manufacturing, professional services, construction, health care, high-tech, financial services, oil and gas, utilities and other industries.

Sonia is a Certified Public Accountant (CPA) licensed in Texas and Illinois, a Chartered Professional Accountant (CPA) in Canada, an Accredited Senior Appraiser (ASA), Accredited in Business Valuation (ABV) by the AICPA, and a Chartered Business Valuator (CBV). She has served as a panelist and presenter to several legal associations, including the American Bar Association, Austin Bar Association and Travis County Women Lawyers’ Association. She has also authored several articles for publication in journals, including CPA Insider, Austin Business Journal and Austin Lawyer, and has been quoted in various news publications, including the New York Times and The Business Journals. Sonia received her Bachelor of Science degree from the University of Toronto in 2004.

 

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