Please see the complete descriptions of our Estate, Gift, & Tax services below:
Estate and Gift
Estate Planning
ComStock Advisors assists business owners and their advisors by providing business valuation services for a variety of business interests, including common stock, preferred stock, options, warrants, limited and general partnership interests, and membership interests in limited liability companies.
A business valuation is needed to assist business owners and their estate planning professionals as they review the various estate planning techniques that might be available to assist the business owner. For estates involving private companies, a business valuation is often the starting point of the estate planning process as the assets need to be properly valued in order to develop the overall estate plan.
Estate Tax
A business valuation is required for filing the estate tax return at the time of death and, under some circumstances, a revaluation may be required as of the alternative valuation date six months after the date of death. ComStock Advisors’ professionals are experienced at preparing independent valuations for federal and state estate tax purposes and are prepared to defend our work in the event of an audit by the U.S. Internal Revenue Service or state taxing authorities.
Gifting and Family Transfers
Gifting is an important part of many estate plans. Individuals often pass on their wealth by gifting assets to their spouse, children, a charity, or other benefactors. Gifts and family transfers of private business interests can take the form of company stock, family limited partnership interests, limited liability company interests, and limited liability partnership interests. To achieve the objectives of the donor and donee, interests may be transferred directly to family members, to a trust (such as a Grantor Retained Annuity Trust), to a Charitable Remainder or Uni-trust, or an Intentionally Defective Grantor Trust. Gifts below the annual gift exclusion amount are not subject to gift tax.
A business valuation is needed to determine the number of shares or units that can be gifted to ensure that the annual exclusion amount is not exceeded. Gifts beyond the lifetime gift tax exemption amount are taxable and gifts above the annual exclusion amount may count against the unified credit for estate and gift tax purposes. A valuation is an important tool for evaluating the tax consequences of the gift. In addition, ComStock Advisors’ valuation professionals are familiar with the adequate disclosure requirements to enable the statute of limitations to start to run on gift transfers.
Prior to making transfers of a closely held business interest between family members, a valuation is recommended to make sure that the transfer is at fair market value. Otherwise, unintended gift tax consequences may result if the transfer is at a price below the fair market value.
Charitable Contributions
A valuation is required whenever a charitable contribution is made of non-public company securities worth over $5,000 and a qualified appraiser must sign IRS Form 8283. Overvaluation penalties can be substantial if the amount claimed for tax deduction purposes is in excess of the fair market value of the shares or units transferred.
Valuations are required when there is a contribution of private company stock or units to a charity, charitable trust, or a private foundation. Annual valuations may be required if the stock is held by a charitable trust that is required to make annual annuity payments if the amount of the annuity is based on the value of the assets held by the trust.
Buy-Sell Agreements
Buy-sell agreements are typically agreements among business owners or between the company and its owners. The defined value in these agreements can be based on business valuations, although there are formulas and other methods of establishing how one owner can depart a business on a pre-agreed basis. If an agreed method of establishing value does not pass certain tests contained in the IRS regulations, it might not be able to be used as the basis for determining fair market value for estate and gift tax purposes.
Also, a formula may not pass the test of time due to changes in the company, the industry, or the economy as a whole. An old formula may no longer produce reasonable results. As a result, periodic valuations may be appropriate to reestablish the value used in the buy-sell agreement or to validate the formula used in the agreement.
Discount Studies
Comstock Advisors can assist owners of asset holding companies in determining the appropriate discounts for lack of control and lack of marketability for non-controlling ownership interests. These asset-based holding companies often own cash, real estate, CDs, marketable securities, and various other types of investments. They often take the form of pass-through tax entities like family limited partnerships or limited liability companies that are taxed like a partnership.
In some situations, regular corporations hold investments or subsidiary companies. The value of these interests is impacted by a built-in capital gains tax that would be realized upon the sale of the holding company’s assets. ComStock Advisors can assist the business owner and its advisors in quantifying the discounts that are appropriate from the underlying net asset value of the company to arrive at the fair market value of the interest or shares.
Some companies have issued both voting and non-voting stock to their shareholders and the non-voting stock often sells at a lower price than the voting stock. ComStock Advisors can research the public markets to determine the difference, if any, between voting and non-voting shares, as evidenced in the public marketplace, to assist in evaluating the discount factor for the non-voting stock in a private company.
ComStock Advisors can also assist owners of publicly traded securities in determining whether the stock they hold would be subject to discounts if the stock is restricted. This is also the case if the block of stock represents an unusually large portion of the shares being traded, such that the block of stock is not easily marketed without having a depressing impact on the stock price.
Tax Disputes
There are a variety of tax disputes that can arise regarding transfers of all, or a part of, a business, or the transfer of an economic interest in a business. These disputes can arise due to differences in the estimated value of the business or business interest. Differences can result because valuation is not a precise science but is based in part on the application of common sense and informed judgment to the particular facts of each case.
ComStock Advisors’ professionals are experienced at analyzing the facts of each case to arrive at an independent, defensible opinion of value. We typically support our opinion with a well documented appraisal report prepared at the time of our analyses. We are prepared to defend our work in audits with the U.S. Internal Revenue Service and if needed, at the appellate division or U.S. Tax Court.
Trust Asset Management
Trust Administration
To properly administer a closely held asset in trust, a valuation of the interest should be considered when the asset is placed in trust to gain familiarity with the asset and to establish a baseline value to which to compare the performance of the asset over time. After the initial valuation, subsequent periodic valuations should be performed as part of the review of the asset by the fiduciary.
Business valuations from an independent source are important to avoid any potential for conflict of interest. Fees charged by trustees are often based upon the value of the assets that are managed, thus posing a potential conflict of interest. ComStock Advisors’ professionals have experience serving as the role of trustee for major bank trust departments and have prepared business valuation services to assist many leading banking and trust institutions.
Trust Asset Reviews
To properly administer an investment held in trust, a review of each asset needs to be performed on a periodic basis. For federally chartered banks, all assets normally must be reviewed upon acceptance of a new account, and at least annually thereafter. For privately held companies this task is often difficult, and information about the company may be hard to obtain.
ComStock Advisors has developed a series of asset review products designed to meet this need with basic, standard, and comprehensive review reports. Valuation calculations can also be included as part of the review process. ComStock Advisors uses proprietary software that we developed to assist in efficiently managing the review of privately held assets in trusts and estates.
Trust Distributions
When a trust or an estate makes distributions in fulfillment of the terms of the governing document, the distributions are not always proportionate – meaning that each beneficiary does not necessarily get the exact same mix of assets. Some beneficiaries, like those who are involved in a family business, may get stock in the private company while other beneficiaries who are not involved in the business may receive other assets of the trust or estate, such as marketable securities.
Since private business interests need a business valuation to determine their fair market value, ComStock Advisors can provide fiduciaries with an opinion on value for the private business interest, taking into consideration the level of ownership and degree of marketability to assist the fiduciary in making equitable distributions.
Estate Administration
A business valuation is required for filing the estate tax return at the time of death. Under some circumstances, a revaluation may also be required as of the alternative valuation date six months after the date of death.
ComStock Advisors’ professionals are experienced at preparing independent valuations for federal and state estate tax purposes and are prepared to defend our work in the event of an audit by the U.S. Internal Revenue Service and state taxing authorities.
IRA Distributions
When an IRA account is making minimum required distributions, there is a need to determine the value of the assets that are held in the account so that the proper distribution can be made to comply with IRS minimum distribution requirements. ComStock Advisors has the experience to value the interests in private companies that may be included in IRA accounts, whether they be corporations, limited partnership interests, or membership interests in limited liability companies or partnerships, so that proper distributions can be made from these accounts.
Fairness Opinions
A fairness opinion is a professional opinion stating whether the consideration offered in a transaction is fair to the owners of the company from a financial point of view.
ComStock Advisors assists boards of directors, trustees, buyers, and other parties who request opinions for mergers, buybacks, divestitures, acquisitions, reorganizations, and large stock purchase transactions. Our expertise in valuing companies and their underlying securities provides us with the experience required to advise our clients on these complex transactions.
Fairness opinions not only include a valuation of the company, but also look at the financial structure of the transaction including the form of the consideration received. Possible forms of consideration include cash, notes, warrants, and equity securities.
Other issues of relative fairness may be addressed, such as whether the pricing of the debt and the terms of any employment and non-compete agreements are market-related. We can also review the relative fairness among investors with the same or different classes of stock.
Income Tax
Built-in Gains Tax
A business valuation is frequently done at the time that a C corporation elects to be taxed as a subchapter S corporation. The purpose is to establish a tax basis for the corporate assets at the time of the election. . The basis determination is important because the sale of corporate assets during a 10-year holding period after the election is made may be subject to built-in gains tax. Built-in gain is the amount by which the fair market value of an asset exceeds its adjusted tax basis as of the conversion date.
83(b) Election
A restricted stock award is a grant of company stock in which the recipient’s rights in the stock are restricted until the shares vest. Normally, the employee receiving the stock award is not taxed until the stock becomes vested, unless a timely special tax 83(b) election is made by the employee.
Employees who make the special tax election include the fair market value of the stock at the time of the grant, minus the amount paid for the shares, if any, as part of their income. This election is often considered to be attractive in the case of a new company or a company with a low value that is expected to grow. Therefore, the employee can get capital gain treatment on most of the stock’s appreciation. ComStock Advisors can assist with determining the fair market value of the stock in connection with this special tax election.