Buyer and Seller at Odds: The Economic Consequences of Holding Appreciated Assets in a C Corporation

2013 ◽  
Vol 28 (4) ◽  
pp. 929-934 ◽  
Author(s):  
Richard A. Gore
Keyword(s):  
Market Value ◽  
Economic Consequences ◽  
Present Value ◽  
The Future ◽  
Economic Reality ◽  
Fair Market ◽  
Stock Acquisition ◽  
Tax Savings ◽  
Fair Market Value

ABSTRACT: A business holding appreciated assets is worth less to its owner if it is held in a C corporation than the fair market value of the assets. This fact arises from the double tax imposed on C corporations. One naive solution to this issue is for the shareholder to structure the sale of the business as a sale of stock in the corporation. What is often overlooked with this suggestion, however, is that the buyer will demand a discount in the price of the business if the deal is structured as a purchase of stock as opposed to a direct purchase of the assets. This economic reality is driven by the fact that the buyer forgoes the future tax savings from the step-up in basis in the appreciated assets of the target corporation in a stock acquisition. To illustrate this economic reality, this case study requires students to determine the present value of the future forgone tax savings to the buyer and to use that information along with the tax consequences to the seller to negotiate a compromise final purchase/sale agreement between the parties.

Compensation for land and building compulsorily acquired in Nigeria

2018 ◽  
Vol 36 (4) ◽  
pp. 446-460
Author(s):  
Idu Robert Egbenta ◽  
Francis P. Udoudoh
Keyword(s):  
Land Use ◽  
Market Value ◽  
Land Acquisition ◽  
Real Property ◽  
Content Type ◽  
Land Owners ◽  
Fair Market ◽  
The Law ◽  
Fair Market Value

Purpose Valuation for compensation on land and buildings compulsorily acquired for public purposes is statutory. The Land Use Act (LUA) of 1978 now cited as Laws of the Federation of Nigeria, CAP l5 LFN 2007, stipulates the use of Depreciated Replacement Cost (DRC) Method in the valuation for compensation purposes for building and installation. The purpose of this paper is to criticize the application of the DRC technique in the valuation by acquiring authority as it does not arrive at fair market value and adequate compensation in Nigeria. Design/methodology/approach The method adopted for the study was a case study of real world valuation for compensation. Data used in the study were gathered mainly from government ministries and agencies responsible for land acquisition and compensation purposes. They included the Ministry of Lands and Housing, Land Use and Allocation Committee, and Ministry of Works and Transport. Market data on rental value, sales prices and other relevant data were collected from firms of professional that deal in real property. Findings The result of the study reveals that valuation by acquiring authority using DRC methods as prescribed by the LUA does not reflect market value and it is inadequate to put the claimants in the position they were before the acquisition. As such, most victims expressed dissatisfaction with the amount paid to them, which sometimes result to crisis, conflict and prolonged litigation, resulting in delay in executing or abandonment of the intended project. Research limitations/implications The study is limited to only one case study on acquisition and compensation for land and buildings with particular reference to Akwa Ibom State. This limitation does not invalidate the result as the law is applicable to the whole country. Practical implications The implication is that the LUA needs to be review to fair market value as basis of valuation and payment for site value as well as the constitution to add “adequate” to Section 44 (1a). This will reduce the incidence of many communities and land owners protest against the decision of government or its agents to acquire their land for public purposes. Originality/value The methodology meets the requirement of the law regarding compulsory land acquisition and compensation in Nigeria: The LUA of 1978. Using three scenarios: the valuation by acquiring authority, claimant’s valuers and independent valuers to illustrate the critique of the methodology, the result shows the inadequacy of compensation.

scholarly journals Valuation of a Residential Building using Land and Building, Rental Income and Composite Rate Method

2019 ◽  
Vol 8 (12S) ◽  
pp. 720-726
Keyword(s):  
Statistical Data ◽  
Residential Building ◽  
Market Value ◽  
Present Value ◽  
Engineering Structures ◽  
Present Worth ◽  
Residential House ◽  
Rate Method ◽  
Fair Market ◽  
Fair Market Value

The art of estimating the meaningful present worth of the commodity or property based on experience, logical approach, relevant statistical data etc. is termed as Valuation of properties such as buildings, factories, other engineering structures of various types, land etc. It determines the present value of properties. This study is focused on the valuation of a residential house of Ground plus one upper floor. The objective of this study is to compare the values obtained by three different methods of valuation and identifying the most appropriate one for the property under consideration. The methods of valuation that are used in the process are: Land and Building method, Rental method and Composite rate method. Depreciation is also given due importance in all the methods. In land and building method, the value of land and the value of the building are estimated independently to obtain the present value of the property. Rental method involved capitalizing the net annual rental income using a suitable rate of interest. Composite rate method is also employed to determine the present value based on the prevailing market rates. Breakup of composite rate for the building under valuation is calculated based on the breakup of composite rate of the building under comparison For the independent residential house, it is observed that Land and Building method showed the least variation from the Fair Market value (INR 7500000 approximately). The value obtained by Land and Building method is INR 7700000.The value obtained through composite rate method is INR 8300000, whereas the value obtained using rental method of valuation is INR5500000.

scholarly journals Family Limited Partnerships Under Attack: Is the End Near?

2011 ◽  
Vol 1 (11) ◽  
Author(s):  
Debra M. Grace ◽  
Michael D. Chase
Keyword(s):  
Market Value ◽  
Family Businesses ◽  
Appellate Court ◽  
Court Decisions ◽  
Business Ownership ◽  
Estate Taxes ◽  
Fair Market ◽  
Tax Savings ◽  
Limited Partnerships ◽  
Fair Market Value

Family Limited Partnerships (FLPs) represent unique vehicles for transferring wealth, such as family businesses, from one generation to another, permitting parents to gradually transfer business ownership to children while maintaining control over operations. FLPs also serve as significant shields against the effects of gift and estate taxes, since valuation discounts can be employed to reduce the fair market value of partnership interests transferred to children and other family members. However, these tax savings have resulted in aggressive audit and court challenges by the IRS. For accountants, responding to these challenges for their clients means understanding both how the financial and tax aspects of FLPs operate. This article details the critical nontax aspects of FLPs and presents a thorough examination of current tax developments, including the June 2002 appellate court decisions. Finally, the article discusses specific steps accountants should take in advising their clients to protect family assets and defend against IRS attacks.

The Impact of S Corporation Status on Fair Market Value

CFA Digest ◽  
2002 ◽  
Vol 32 (1) ◽  
pp. 89-90
Author(s):  
Frank T. Magiera
Keyword(s):  
Market Value ◽  
Fair Market ◽  
Fair Market Value ◽  
The Impact

The Valuation Relevance of Reversing Deferred Tax Liabilities

2004 ◽  
Vol 79 (2) ◽  
pp. 437-451 ◽  
Author(s):  
David A. Guenther ◽  
Richard C. Sansing
Keyword(s):  
Discount Rate ◽  
Firm Value ◽  
Market Value ◽  
Present Value ◽  
Depreciation Rate ◽  
The Future ◽  
Deferred Tax Liabilities ◽  
Deferred Tax ◽  
Tax Depreciation ◽  
Depreciation Methods

This paper compares two attributes of a deferred tax liability (DTL) that arise from differences in book and tax depreciation methods. The first attribute is the effect of the DTL on the market value of the firm. The second is the length of time between when the asset is placed into service and when the DTL associated with that asset begins to reverse. The paper shows that a decrease in the time it takes for the DTL to begin to reverse is neither necessary nor sufficient for the value of the DTL to increase. It also shows that the value of the DTL is not equal to the present value of the future deferred tax expense. The effect of one dollar of DTL on firm value depends only on the tax depreciation rate and the discount rate.

Sign in / Sign up

Export Citation Format

Share Document