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BES Newsletter
January - February 2010 |
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Business Evaluation Systems, Inc.
1700 F.M. 517 E. Suite A
Dickinson, Texas 77539
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Greetings,
Since 1973, Business Evalutation Systems has been involved in the appraisal of over 16,000 companies, covering almost every industry on a national and international basis, ranging in value from $50,000 to over $7 billion.
Our experience has qualified us to meet the requirements of the Appraisal Foundation, the Internal Revenue Service, lending institutions, and courts of law around the country. Two of the appraisals the company was involved in have passed the scrutiny of the World Bank. The appraisers in Business Evaluation Systems have sold over 1,000 businesses.
Sincerely,
Business Evaluation Systems, Inc.
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Business Personal Property & Taxes
By: George D. Abraham
CEO, Business Evaluation Systems As stated in the tax code1, "Personal property'' means property that is not real property. ''Tangible personal property'' means personal property that can be seen, weighed, measured, felt, or otherwise perceived by the senses, but does not include a document or other perceptible object that constitutes evidence of a valuable interest, claim, or right and has negligible or no intrinsic value. In other words it is a company's furniture, fixtures, machinery, equipment and inventory.
In a recent article in the Galveston County News, more than one million property owners rushed to file protests after 9.6 million appraisal notices were mailed across Texas in 2006, a half million resulted in appraisal review board hearings that were conducted at county appraisal districts, and 5,600 resulted in lawsuits filed in state district courts. Since then, property values still increased and the protests and filings have continued. Needless to say there is a real need for machinery and equipment appraisals to help businesses establish the fair market value of their personal property.
Having spent three years with the Galveston County Central Appraisal District as a Panel Chairman of the Industrial Review board and settling over 1,400 protests, I can tell you that the Appraisal District welcomes a certified appraisal on a company's personal property because it establishes the correct value that will benefit the company and the Appraisal District for many years to come.
The Appraisal District knows its values are weak, but it is up to the taxpayer to prove it. If the taxpayer does not correct (notice the word correct instead of whining) their value, the Appraisal District assumes they are probably correct or too low since they seem to be satisfied with the value.
Initially the Appraisal District sends out forms for each new company to list their values for personal property. If the value seems low, then an appraiser from the Appraisal District visits the facility. He may or may not introduce himself or speak to the owner. Based on his or her visual assessment the value will stay the same or is adjusted and the owner will find out the results on the next tax statement. Many of the adjustments are made from ratios of similar companies in that industry. If the company feels the resulting values are too high then the company can file a protest with the Appraisal Review Board and can present their case as to why the values are not correct. The Appraisal Review Boards are made up of private citizens and few have any appraisal training. It is their job to listen to the taxpayer and then hear from the appraiser from the Appraisal District that valued their property. Once each side has presented their case, the 3 members of the panel will vote to see who they think is right and what to do about the value. All of the hearings are recorded and are conducted like a mini court room.
From my experience, most of the members of the Review Board are always sympathetic to the taxpayer, but can only lower values for solid appraisal reasons such as functional or economic obsolescence. In almost all cases, when the business has an appraisal from a credible appraisal firm, the panel has to accept that value as it is a true appraisal and not an estimate that the appraisal district came up with. The Appraisal District understands this and has no problems with adjusting the values per the appraisal.
Establishing the correct fair market value benefits both the business and the Appraisal District as it established the correct base for their computer to depreciate the assets over their remaining useful life (RUL). Industry tables for RUL are pretty much accepted by each industry and are generally accurate.
Business Evaluation Systems appraisers can help a business owner in any state with the value of their business personal property including inventory.
1 State of Texas, Property Tax Code, Section 1.04 (4)(5)
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Update: Small Business Job Creation and Access to Capital Act of 2009
WASHINGTON, Dec. 10 /PRNewswire-USNewswire/ -- United States Senate Committee on Small Business and Entrepreneurship Chair Mary Landrieu, D-La., and Ranking Member Olympia J. Snowe, R-Maine, today introduced legislation to increase access to capital for small businesses and help create jobs. S. 2869, the "Small Business Job Creation and Access to Capital Act of 2009" would increase the small business loan limit to as high as $5.5 million and extend for a year the fee eliminations and increased guarantee set to expire under the Recovery Act.
Specifically, the "Small Business Job Creation and Access to Capital Act of 2009" would:
· Increase the loan limit on 7(a) loans from $2 million to $5 million;
· Increase the loan limit on 504 loans from $1.5 million to $5.5 million;
· Increase the loan limit on microloans from $35,000 to $50,000 and increase the maximum loan made to a microloan intermediary from $3.5 million to $5 million;
· Allow the 504 loan program to refinance short-term commercial real estate debt into, long-term, fixed rate loans;
· Extend the authorization to provide 90 percent guarantees on 7(a) loans and fee elimination for borrowers on 7(a) and 504 loans through December 31, 2010; and
Direct the SBA to create a website where small businesses can identify lenders in their communities
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Wealthy are urged to make taxable gifts during estate tax's lapse
Wealthy people can take advantage of the one-year lapse in the estate tax by making taxable gifts this year. The tax for gifts of more than $1 million fell to 35% from 45% on Jan. 1, but is scheduled to increase to 55% at the start of 2011. "Someone who makes a taxable gift or a generation-skipping transfer today may pick up a windfall," said David Pratt, an estate lawyer with Proskauer Rose. Forbes
If you're wealthy, here's some good news: You don't have to die in 2010, have a loved one pass on from natural causes or "throw Grandma from a train" for your family to save big bucks from the temporary lapse of the federal estate tax.
As part of the Bush tax cuts passed in 2001, the estate tax and related generation-skipping tax disappeared Jan.1, 2010--for just one year. On Jan. 1, 2011, when the Bush tax cuts themselves expire, both taxes will come roaring back at their full pre-Bush strength, with a top estate tax rate of 55% and only the first $1 million of an estate exempt. Planners always assumed Congress would have been able to agree on a permanent estate tax level before 2010, but now worry the whole disappearing/reappearing act could turn into an administrative and legal nightmare for some families.
Meanwhile the rich are racing to make taxable gifts. Taxable? Yep. Under the Bush tax cuts, the gift tax, which is paid on wealth of more than $1 million transferred while you're alive, did not disappear as of Jan 1. But the gift tax rate fell from 45% to 35%. Absent a political compromise, it too will rise to 55% in 2011.
"Make taxable gifts! Yes, you read right!" estate lawyer Martin Shenkman declared in a 59-page analysis of estate tax repeal on his Web site LawEasy.com. "If you make large, taxable gifts at the 2010 35% maximum gift tax rate, that could be a whopping savings from incurring the 55% marginal estate tax rate that comes into play in 2011 and later years if Congress does nothing."
David Pratt, an estate lawyer with Proskauer Rose in Boca Raton, Fla., reports he has a client who waited until Jan. 1 to give $20 million outright to his three children, all in their 50s, in hopes of snagging the 35% gift tax rate. "Someone who makes a taxable gift or a generation-skipping transfer today may pick up a windfall," Pratt exults.
The reason Pratt says "may" is because the higher 45% gift tax rate that prevailed in 2009, along with the estate and generation-skipping taxes, will be restored retroactively. True, the $20 million gift at a 35% tax rate won't save money for the family of Pratt's client if the client dies this year when there isn't an estate tax and the estate tax isn't imposed retroactively. In that case, the $20 million could have gone to the kids tax-free. But he's not planning on dying this year. |
SECTION 409(A): WHAT IT MEANS FOR PRIVATE COMPANIES The IRS recently "threw down the gauntlet" and placed pressure on private companies to get their valuations right - no matter what stage of development they are. The Service has backed up this gesture by exposing private companies to substantial tax liabilities and penalties if they don't. Since the enactment of Section 409(A), non-public companies have struggled with how they should establish that the exercise price of a stock option or a stock appreciation right (SAR) was determined reasonably to be fair market value.
Up to this point most private companies did not worry about valuing their stock very often, if at all. Private company valuations were needed usually for an imminent transaction, for an ESOP, or for estate and gift tax purposes. One could also throw in serious IPO candidates who obtain a valuation to avoid a "cheap stock" issue with the SEC. Many private companies do not qualify for any of these scenarios; therefore they have not needed valuations in the past. As a result, companies and management that issue stock options could be somewhat unenthusiastic about this development. (Understandably so) However, although a valuation in this situation can appear fairly cumbersome and superfluous, it's not all bad - just ask auditors.
Auditors have expressed a desire for this to be done for years. They are cognizant of this development because valuing stock options is a financial reporting issue under FAS 123 and they want to know how a private company established the strike price of its options. There is some liability risk attributed to auditors when they sign off on this standard, and a professional valuation provides them with a level of reasonableness and reassurance that they desire.
Considering this, there is a potential for tax and financial reporting synergy here. With a good valuation report on hand, both issues could be satisfied simultaneously - two birds with one stone if you will.
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Gary Bayus, CBI, CBB Prestige Business Sales and Acquisitions
George D. Abraham and the staff at Business Evaluation Systems continue to perform appraisals for us at Prestige Business Sales and Acquisitions. They have performed all actions on time and on budget. The latest appraisal was spot on and is exactly what the business ending up selling for. I find their appraisals to be a powerful tool that helps all parties in the transactions find the way to successful conclusion. He is my go-to guy when I need accurate and timely appraisals.
We are very pleased with George and his staff's performance and would not hesitate to engage them again on any other similar transactions. His knowledge and experience is unsurpassed. BES is always my 1st choice for certified appraisal.
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