Prince estate and IRS embroiled in fierce valuation dispute

A recent article in the Star Tribune says the executor of the estate of Prince, the late world-famous rock star, and the Internal Revenue Service are currently locked in a fierce estate and gift tax dispute. The IRS argues the executor has seriously undervalued the estate, and the executors claim the IRS’ calculations “are riddled with errors.”

Prince (full name Prince R. Nelson) died in April 2016 of an overdose of fentanyl. The fact that he had no will has resulted in complicated and extensive probate proceedings and wildly fluctuating estimates of the worth of Prince’s estate.

The executor of the estate is Comerica Bank & Trust, a financial services company headquartered in Dallas. According to the Star Tribune, Comerica filed a tax return in 2017, valuing the estate at $82.3 million. Last June, the IRS issued a notice of deficiency in which the agency claimed the estate was worth about double that much, $163.2 million, and owed an additional $32.4 million in taxes. The IRS assessed an accuracy-related penalty related to what it considered a “substantial” undervaluation of the estate.

The U.S. Tax Court’s docket shows that, in August 2020, Comerica petitioned the court for review and, at the same time, asked for a trial. At issue are the value of Prince’s real estate holdings and, most controversial, nontangible assets. The latter include ownership interests in music publishing, music compositions, and recordings. The article reports that at least one “deep-pocketed investor in music copyrights” has expressed great interest in acquiring the rights to Prince’s music.

Besides his reputation as a brilliant musician, Prince became famous for keeping tight control over the release and use of his music and for enforcing his intellectual property rights aggressively. Case research shows that Comerica, whose role as executor includes acting as “fiduciary charged with monetizing and protecting the Estate’s intellectual property for the benefit of [Prince’s] heirs,” seeks to continue along this path. It has set up the official Prince YouTube channel and has successfully litigated copyright infringement claims against those who have released unauthorized audio and/or video recordings of Prince performances (Comerica Bank & Trust, N.A. v. Habib).

Stay tuned for further reporting on this matter.

Letter to the editor: Proposed change to BV Glossary

The following letter concerns the proposed changes to the International Glossary of Business Valuation Terms (see last week’s coverage for details):

Dear Editor:

I think many certified as ABVs and CPAs who perform valuation services will be interested in the effective change to AICPA’s professional standard for valuation services, VS Section 100, if the proposed revised “international glossary” is adopted and replaces the original international glossary currently at VS 100.81.

The proposed revised glossary has about twice as many terms as the current version. The current version of the international glossary in the standard has 123 valuation terms. The December 14, 2020 proposed revised international glossary has 239 valuation terms.

Some of the new terms include valuation methods including Backsolve Method, Cost Savings Method, Current Value Method, Distributor Method, Greenfield Method, Hybrid Method, Investment Method, Premium Profits Method, Summation Method, and With and Without Method.

In addition to new methods, the proposed revised glossary adds technical terms including All Risks Yield, Calibration, En Bloc Value, Evidential Skepticism (that differs from Professional Skepticism in the document), Notional Market Valuation, Ratable Value, Self-Skepticism, and Sustainability (that relates to climate change, corporate responsibility, and other factors).

I see two issues for the AICPA’s comment period: first, should the proposed revised glossary be included in AICPA’s professional valuation standard VS 100 or separated as an obvious non-authoritative document similar to a practice aid or practitioner handbook; and, second, whether the valuation terms are reasonable or acceptable. From the perspective of ABVs and CPAs who perform valuation services, I think the first area to consider is whether the proposed glossary document belongs in the VS 100 professional standard. It could, for instance, increase risk for practitioners. Also, I think AICPA providing a mark-up (redline) version of the proposed revisions would be a large benefit to those reviewing the proposal for possibly providing comments to AICPA.

Dr. Michael A. Crain, CPA/ABV, CFA, CFE

Editor’s note: Dr. Crain was the chair of the AICPA’s Business Valuation Committee in 2007 when the AICPA issued its business valuation standard, Statement on Standards for Valuation Services (SSVS), now commonly known as VS Section 100. He is currently the director of Florida Atlantic University’s Center for forensic accounting and continues to practice on a part-time basis.

Comments on the proposed changes are due January 31. Click here for our coverage from last week that has links to the document and how to submit comments.

New guidance issued on the Payroll Protection Plan

During a recent BVR webinar, speakers report that many business owners will claim their Payroll Protection Plan (PPP) loans will be 100% forgiven. In reality, not everyone will receive 100% forgiveness, so appraisers need to make their own decisions about whether what clients are saying is reasonable or not. The U.S. Small Business Administration (SBA) and Treasury have issued new guidance for the reopening of the PPP. The new guidance released includes:

·         PPP guidance from SBA Administrator Carranza on accessing capital for minority, underserved, veteran, and women-owned business concerns;

·         Interim final rule on Paycheck Protection Program as amended by Economic Aid Act; and

·         Interim final rule on second draw PPP loans.

Speakers on the BVR webinar also advised experts to consult with a client’s accountant and attorney about the loan forgiveness.

Today’s the deadline to send your video question to the BV ‘power panel’

You can get free admission to BVR’s Power Panel: Live Expert Answers for Today’s Tough BV Questions on January 14 if you send in a video of yourself asking a question you want the panel to answer. But you must send it in before the end of today, January 13, to qualify. The panel will consist of Jay E. Fishman (Financial Research Associates), Michelle F. Gallagher (Adamy Valuation), Ken Pia (Marcum), and Jeffrey S. Tarbell (Houlihan Lokey). Use your smart phone or other device and video yourself asking a question and send it to BVR’s training director, Jared Waters, at JaredW@bvresources.com by the end of today, January 13, and you’re all set. If you have any trouble doing this, contact Jared for help.

Business Reference Guideupdated for 2021

The 2021 edition of the Business Reference Guide (BRG) by Tom West is now available. Now in its 31st year, it contains the latest industry-related information including “rules of thumb,” pricing tips, benchmarking information with comparison data, industry resources, and general industry data on nearly 600 types of businesses. There is also an online version with a fully searchable database, and it includes the print version of the guide.

FAU offers online accounting course on data analytics

The School of Accounting Executive Master’s Degree Program at Florida Atlantic University has developed an online accounting course on data analytics in auditing, managerial accounting, and financial statement analysis. The course includes hands-on practice in extracting data from accounting systems for use in analytical software. This course covers an entire semester, which starts this month (officially on January 16) and is worth three credit hours for CPE purposes, which should translate to 45 CPE credits. There is no set class schedule—you make your own weekly schedule and arrange online meetings with the instructor for one-on-one or group meeting. There is a short video by the instructor, who is a CPA with direct experience in data analytics. The cost is $700. The contact information for the application is 561-297-0525, or you can email Deborah Cavicchia at dcavicchia@fau.edu. FAU’s School of Accounting Executive Program can help expedite the application process.

Revised resource for IP valuation insights and case law

New chapters and over 200 case digests—plus online access to the full text opinions—are available in BVR’s Intellectual Property Valuation Case Law Compendium, 4th edition. This compendium helps remove the guesswork from understanding what it takes for an effective expert/attorney team to win a case in intellectual property valuation. In addition to the case material, there are articles that outline practical tactics for use in any IP engagement, including a list of the top 20 questions to ask when completing due diligence for an IP valuation. For more details and the table of contents, click here.

Global BV News

PFI featured in latest OIV Journal

The latest edition of the journal of the Organismo Italiano di Valutazione, the valuation standards-setter in Italy, is now available if you click here. This edition contains the following articles:

• The use of management’s prospective financial information: a focus on fair value measurement using discounted cash flow techniques (David C. Dufendach); and
• Early warning signs (value based) of imbalances in troubled firms (Mauro Bini).

Dufendach advises that valuation professionals should increase their familiarization regarding Guidance on PFI contained in the Mandatory Performance Framework (MPF1) and Application of the Mandatory Performance Framework (AMPF) for the CEIV credential—“even though it may not be required,” he writes. The guidance addresses professional skepticism, due diligence procedures, reasonably objective basis, and documentation.