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THE JUDGE WOULDN’T IGNORE THIS “ROUNDING ERROR”

June 2017 | Issue 86 Background Constellis Group,  Inc. is a private security firm.  In December 2013, the Company formed an Employee Stock Ownership Plan (“ESOP”), which purchased 100% of Constellis’s voting stock.  Wilmington Trust NA was named Trustee of the ESOP.  Less than a year after the ESOP was created, the ESOP sold all […] More...

NEW JERSEY COURT USES VALUATION DISCOUNT TO PUNISH “BAD BOY”

March 2017 | Issue 85 Introduction Richard and Steven Parker are brothers who ran a flower business in Scotch Plains, New Jersey.  Richard is the President of Parker Interior Plantscapes (“PIP”), which installs and services plants and flowers in commercial settings.  Steven is the President of Parker Wholesale Florists (“PWF”), which is a garden center.  […] More...

Dell Appraisal Spawns a Multitude of Valuation Approaches

February 2017 | Issue 84 Introduction A Delaware Chancery appraisal case involving computer company Dell Inc. gave rise to a multitude of valuation measurements.  It is instructive to see how the court sorted through them in coming up with its final appraisal conclusion.  The case is In re Appraisal of Dell Inc., 2016 Del. Ch. LEXIS […] More...

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IRS Redefines Gross Valuation Misstatement

September, 2006 | Issue 8

Current law provides for heavy penalties for taxpayers who “substantially” or “grossly” misstate the value of property given in a charitable donation or reported in a gift or estate tax return. There’s a 20% penalty for a substantial valuation misstatement and a 40% penalty for a gross misstatement.

Definitions Tightened
The Pension Protection Act of 2006, signed August 17, 2006, tightens up the definitions of “substantial” and “gross” for purposes of determining whether these penalties apply. Under the new law, for income tax purposes, if you overstate the property’s value by 200% or more (instead of 400% as before), you have committed a gross misstatement. For estate and gift tax purposes (where people are tempted to understate values) a reported value of 65% or less of correct value is a substantial misstatement (the old limit was 50%) and a reported value 40% or less of correct value (rather than 25%), is a gross misstatement.

Good Appraisals are Important
These changes take effect for returns filed and appraisals submitted after August 17, 2006. Need it be said that it is more important than ever that taxpayers employ experienced and competent appraisers to help them to accurately determine these values.