In the past few months there has been much discussion in the valuation community about the March court case, Kress v. United States of America, Case No. 16-C-795, U.S. District Court, E.D. Wisconsin (March 25, 2019). This case has become significant because the government’s expert used a valuation methodology that differs from the IRS’ and the government’s traditional stance on the tax treatment of S-Corporations for valuation purposes. It should be noted that this was a district court decision; not a tax court decision.

In the Kress case, both the Kress’ experts and the government’s expert “tax-affected” when valuing the subject S-Corporation. S-Corporations are generally not subject to entity-level taxation like C-Corporations. Instead, S-Corporation shareholders are taxed on entity earnings at their personal tax rate rather than at the corporate or dividend tax rate. By “tax-affecting” the S-Corporation’s earnings, the valuation professional attempts to account for the S-Corporation shareholder’s tax burden in determining the value of the business, even though no entity level tax exists.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]