June 1997

Business Valuation

Using Family Limited Partnerships to reduce taxable gifts and estates by 45%

One of the hottest areas of gift and estate planning involves transferring real estate to family limited partnerships (FLPs). Lets say you own real estate worth $2,000,000 and you want to gift 30% of the real estate to your son. If you make an outright gift of 30% of the real estate, you would create a $600,000 taxable gift. If instead, you transfer the real estate into an FLP and gift 30% of the FLP to your son, you could reduce the taxable value of the gift by 45% according to a recent Tax Court decision. Why? Because the 30% interest in the FLP may be subject to minority interest and lack of marketability discounts! Advantages of the FLP include:

Litigation Services
Should CPA's represent existing clients in Marital Dissolutions?

When a CPA's clients are getting a divorce, it is not uncommon for one of the spouses to request that the CPA represent one or perhaps both parties as a consulting expert or as an expert witness. The American Institute of Certified Public Accountants, in its publication Conflicts of Interest in Litigation Services Engagements, Consulting Services Special Report 93-2, cautions CPA's against potential conflicts of interest.

Given the adversarial nature of litigation services, the CPA and the client's attorney should consider the nature of the CPA's relationship with each of the spouses. Even though the CPA's role as an expert witness is to present objective opinion, it may be difficult to adequately advise both parties to a divorce for the following reasons:

Breach of Confidentiality. During the CPA's prior engagement with the couple, the CPA may have received confidential information from one of the parties. By accepting an engagement to represent one or both of the parties, the CPA might compromise the confidential nature of these communications.

Objectivity. The CPA may have a more significant economic relationship with one spouse through work performed for a business. This relationship could lead to an inability to provide objective advice for both parties.

It has been my experience that CPA's have a strong tendency to want to provide services to existing clients in a divorce, perhaps out of loyalty or fear of bringing in another accountant. In my opinion, the client is best served by not using the existing CPA as an expert witness. The CPA can best serve existing clients by limiting his or her role to providing objective financial information and being a fact witness.

Using binding arbitration for financial disputes under $50,000

Let's face it. Its hard to have a good lawsuit for under $50,000. By the time the parties pay for two attorneys, two accounting expert witnesses, formal discovery, depositions and trial, its not likely that the parties will have any money left over to fight about.

I was recently contacted by two attorneys to arbitrate a dispute concerning amounts due under a contract between their clients.

Day one. I spoke to both attorneys to get their positions.

Day three. Reviewed prior correspondence between attorneys

Day six. Spoke to both parties

Days seven through thirteen. Met with parties, talked to parties' accountant and reviewed documentation

Day fourteen. Rendered arbitration decision

Arbitration cost to each party. Less than $1,000

  • Valuation Report Critiques
  • Business Valuations
  • Financial Litigation Support
  • Expert Witness Services
  • Mediation of Financial Disputes
  • Divorce Valuations
  • Buy/Sell Formulas
  • Court Appointed Special Master
  • Court Appointed Receiver
  • Economic Loss Analysis
  • Gift & Estate Valuations
  • Financial Issues in Divorce