Taxation

Case Studies

Estate Tax

A decedent’s estate consisted of minority ownership interests in three privately held C-Corporations, each holding a combination of real estate and marketable securities. In valuing the decedent’s interest in each company, the estate reduced the value of the underlying assets by discounts for minority interest, lack of marketability and built-in capital gains. The Internal Revenue Service (IRS) engaged MSG to value the three companies, assess the reasonableness of the discounts taken on the estate tax return, and provide testimony in tax court.

Asset Depreciation

MSG was retained on behalf of the estate of a former major airline carrier to analyze the carrier’s method of depreciating its aircraft. The analysis focused on the depreciation deducted while aircraft were in use over the United States and its territories and depreciation taken while aircraft were flown overseas.

Family Limited Partnership

A taxpayer challenged the Internal Revenue Service's (IRS) valuation of a family limited partnership consisting of real estate, securities, a shareholder loan, and cash. The valuation dispute centered on the appropriate level of minority interest and lack of marketability discounts. MSG analyzed the discounts applied to the underlying net asset values.

Gift Tax

On behalf of the Internal Revenue Service (IRS), MSG was retained to critique the value placed on shares of a privately-held aerospace electronic instruments manufacturer that the taxpayer gifted to family members. We valued the stock of the company as of the gift date. Our report also included a trend-analysis for the industry and a review of investment banking activities pertaining to the sale of the company.

Estate Tax

A personal holding company that managed investments for the benefit of several trusts held a portfolio of assets mostly comprised of marketable securities. An individual owning a minority stake in the company passed away. In valuing the deceased’s interest in the holding company, the estate tax return took discounts for minority interest, lack of marketability, and built-in capital gains (or “trapped capital gains”). The Internal Revenue Service (IRS) engaged MSG to value the estate and to determine the reasonableness of the discounts taken on the estate tax return.

§382 Change of Control

An operator of casual dining restaurants completed a recapitalization and ownership restructuring. Several months following the recapitalization, the company acquired another chain of casual dining restaurants being spun-off from a large publicly-traded food and beverage company. An additional round of equity and bank debt financed the acquisition. MSG was engaged to determine if the first recapitalization resulted in a change of control as determined under §382 of the Internal Revenue Code and to value the common stock and preferred stock of the combined entities following the acquisition.

Acquisition

On behalf of the Internal Revenue Service (IRS), MSG was retained to analyze the long-term impact of an acquisition on the target company, a manufacturer of equipment used in the paper industry. The issue was whether the investment banking fee paid was for the long or short-term benefit of the company. Based on our analysis, we determined a reasonable useful life over which the fees should be deducted.

Offshore Asset Management

A U.S.-based asset management firm operated a Cayman Islands office where it offered tax-advantaged investments to non-U.S. citizens. The Internal Revenue Service (IRS) asserted that the U.S. corporate tax return for the company allocated a disproportionately high fraction of its revenue to the Cayman Islands entity and thus excessively lowered U.S. taxable income. MSG was retained on behalf of the IRS to determine the reasonable fee income and costs associated with operating a money management firm, taking into consideration the level of service provided.

Technology Transfer

A U.S. manufacturer of material testing equipment purchased a foreign company operating in the same field. Following the acquisition, the U.S. parent company transferred the foreign subsidiary’s technology to the U.S., and needed to determine the value of the technology for book and tax purposes. MSG applied a variety of different techniques to value the transferred technology.