KW Economics prepares business valuation for tax and transfer pricing dispute matters involving businesses in California: the controlled transactions and prices at issue, the records and comparables that test them, and a report written for the forum that decides the dispute. Either side.
A tax dispute becomes a valuation when it turns on what property was worth rather than on a recurring intercompany price: intangibles or a business line transferred to an affiliate in a restructuring, a contribution to an arrangement in which affiliates share the cost of developing intangibles, or a closely held interest transferred by gift or at death. The economist values the property under the income, market, and asset approaches as the facts support, states the projections, the discount rate, and the useful lives the value rests on, and applies the standard of value the tax framework requires. Where the same dispute also tests the prices the affiliates charged one another, the valuation is reconciled with the transfer pricing analysis so that the value of the transferred property and the returns to each company's routine functions are not counted twice.
Valuation of closely held businesses and ownership interests for shareholder and partnership disputes, divorce, estate and gift matters, and buy-sell disagreements. The work applies the income, market, and asset approaches under the standard of value that governs the matter, addresses discounts for lack of control and marketability where they apply, and documents every input so the conclusion can be tested on cross-examination.
The result usually turns on a few choices: the method, and whether a comparable price or a profit-based method is the more reliable on the facts; the tested party, and whether it is truly the simpler participant; the comparables and the screens that admitted or excluded them; the profit level indicator; the years of data; and the point within the range the forum uses. For intangibles, who owns them, who performed the functions that created their value, and whether the royalty base and terms match the comparables move the result most. Penalty exposure in a federal case depends on whether the documentation that existed when the return was filed supported a reasonable method, a separate question from whether the price was arm's length, and in commercial, shareholder, and divorce cases the restated profit carries into a damages claim or a valuation, where the governing contract or duty decides how it is used.
Federal tax forums test expert testimony under the federal rules of evidence, which the Tax Court applies by statute: whether the expert is qualified, whether the testimony rests on sufficient facts or data and on reliable methods, and whether those methods were reliably applied to the facts of the case. The commercial, shareholder, and matrimonial claims heard in California's courts are tested under its own standard, and a state tax appeal follows the rules of the forum that hears it. California courts ask whether the reasoning and data behind an expert opinion are sound and whether the opinion rests on matter of a type experts reasonably rely on, reserving a general-acceptance test for novel scientific techniques; the witness is qualified by training and experience. A transfer pricing report meets each of these inquiries by stating every method choice and naming the data behind every comparable.
Highest court: Supreme Court of California. Court system: courts.ca.gov.
Federal venues: Northern District of California, Eastern District of California, Central District of California, Southern District of California.
A federal transfer pricing dispute applies the same statute and regulations wherever the business is based, but where it is based decides which appellate decisions govern: an appeal from the Tax Court ordinarily goes to the federal court of appeals for the circuit where a corporation has its principal place of business (for a business based in California, the Ninth Circuit), whose precedent the Tax Court follows, and a refund suit is filed in the federal district where the business is based or in the Court of Federal Claims. Whether California reallocates income between related companies under its own tax, requires royalties or interest paid to an affiliate to be added back, or combines affiliates in one return, and whether a commercial, shareholder, or matrimonial claim in California adopts an arm's length benchmark, are questions counsel confirms; the report presents the analysis so it can be applied under either party's position.
We issue the final report and provide deposition and trial testimony and critique of opposing valuation reports.
A tax dispute becomes a valuation when it turns on what property was worth rather than on a recurring intercompany price: intangibles or a business line transferred to an affiliate in a restructuring, a contribution to an arrangement in which affiliates share the cost of developing intangibles, or a closely held interest transferred by gift or at death. The economist values the property under the income, market, and asset approaches as the facts support, states the projections, the discount rate, and the useful lives the value rests on, and applies the standard of value the tax framework requires. Where the same dispute also tests the prices the affiliates charged one another, the valuation is reconciled with the transfer pricing analysis so that the value of the transferred property and the returns to each company's routine functions are not counted twice.
Federal tax forums test expert testimony under the federal rules of evidence, which the Tax Court applies by statute: whether the expert is qualified, whether the testimony rests on sufficient facts or data and on reliable methods, and whether those methods were reliably applied to the facts of the case. The commercial, shareholder, and matrimonial claims heard in California's courts are tested under its own standard, and a state tax appeal follows the rules of the forum that hears it. California courts ask whether the reasoning and data behind an expert opinion are sound and whether the opinion rests on matter of a type experts reasonably rely on, reserving a general-acceptance test for novel scientific techniques; the witness is qualified by training and experience. A transfer pricing report meets each of these inquiries by stating every method choice and naming the data behind every comparable. Federal income tax disputes over related-party prices are heard in the United States Tax Court or, on a refund claim, in a federal district court or the Court of Federal Claims; appeals from the Tax Court and the district courts ordinarily go to the federal court of appeals for the circuit where the business is based, and appeals from the Court of Federal Claims to the Federal Circuit. A dispute over California's own tax follows its administrative and appeal process. Commercial and shareholder claims in California that turn on an intercompany price are heard in the Superior Court (Unified general jurisdiction trial court in each of 58 counties; handles all civil and criminal matters), with final appeals to the Supreme Court of California, and a divorce in which one bears on income or the value of a business is heard in the court that hears divorce in California. Matters within federal jurisdiction proceed in the Northern District of California, Eastern District of California, Central District of California, and Southern District of California.
A federal transfer pricing dispute applies the same statute and regulations wherever the business is based, but where it is based decides which appellate decisions govern: an appeal from the Tax Court ordinarily goes to the federal court of appeals for the circuit where a corporation has its principal place of business (for a business based in California, the Ninth Circuit), whose precedent the Tax Court follows, and a refund suit is filed in the federal district where the business is based or in the Court of Federal Claims. Whether California reallocates income between related companies under its own tax, requires royalties or interest paid to an affiliate to be added back, or combines affiliates in one return, and whether a commercial, shareholder, or matrimonial claim in California adopts an arm's length benchmark, are questions counsel confirms; the report presents the analysis so it can be applied under either party's position. The report states each transaction, method choice, and comparable screen with its source and shows the result under the opposing method, tested party, and comparables, so counsel can apply the rule of decision of the forum that hears the dispute to a documented result.
Request a consultation on Business Valuation or call (201) 343-0700. Plaintiff and defense counsel.