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Business Valuation Case Study: Form 706 Estate Tax Return filing

Posted by BEACo on March 16, 2018

We recently valued a corporation for the filing of Form 706 whose primary business activity and profitability had eroded over the years. Wisely, the Los Angeles based corporate owners and top management started placing its surplus cash into other investments several years ago. These other investments including income-generating real property, securities, corporate bonds, other businesses and other income-producing ventures. In recent years, the entity's earnings from its so-called other "non-operating investments" surpassed those of its primary business.

On this assignment, once we had determined the value of the corporation's different classes of investments, we then concentrated to value the non-controlling ownership interest that had been held by the decedent. It would be unrealistic and without foundation to attempt to estimate the appropriate discount for lack of control and lack of marketability without a thorough analysis of the risks associated with an multi-asset based investment entity.

To this end, our research and analysis enabled us to opine to well-supported discounts that took into account the quality of its real property investments, its investment in various grades of securities, the promissory notes including their security and the ability of the borrowers to pay on and pay off the notes when they became due, et cetera. We also had to take into account the primary business and its discount. Here, the forecasted return on investment was no longer sufficient to motivate a purchaser acquiring the net operating business assets without an appropriate discount.

By treating each class of investment separately, we concluded as to discounts that prudent and knowledgeable investors would take into account when weighing a potential non-controlling investment in this multi-faceted corporation.

Business Enterprise Appraisal Company, Inc. ("Business Enterprise") has served its Southern California-based clients with comprehensive and well-supported appraisal reports since 1972. We have assisted hundreds of individuals, attorneys, accountants, business owners, families and the courts with accurate valuation reports at very competitive fees. If you have valuation-related questions, email us without obligation on your part at or call us at (818) 591-9282.