DOL-USA proposes change to ESOP prohibited transaction exemption requirements

ESOP appraisers should take note of a proposed rule to amend the Department of Labor (DOL) prohibited transaction exemption procedure, reports the American Society of Appraisers (ASA). The proposal would change several aspects of how appraisers engage with plan fiduciaries and perform engagements in connection with employee stock ownership plans (ESOPs).

Among the changes are revised definitions of “qualified independent appraiser” and “qualified appraisal report.” An appraiser would not be deemed as “independent” if the revenues he or she receives, or is projected to receive, from the exemption transaction exceed 2% of the appraiser’s annual revenues from all sources in the prior tax year or projected revenue for the current tax year, the ASA points out. The updated definition of “qualified appraisal report” requires the report to be prepared solely on behalf of the plan, thus ensuring the qualified independent appraiser only considers the interest of the plan, its participants, and beneficiaries, the ASA says.

The proposed rule is available if you click here. Written comments and requests for a public hearing on the proposed rule must be submitted to the DOL by April 14. The ASA says it intends to file comments in connection with this proposal and will make that response available when completed.

No valuation adjustment for alleged acts of oppression

In a Connecticut case, four siblings were partners in a number of restaurant properties and one of the partners (who had a 25% interest) was ousted by the others. He was accused of mismanaging company finances and committing alleged acts of anger and/or physical violence, including striking their mother. The ousted member sued, claiming he was treated unfairly, was owed money, and that his siblings forged his signature on documents. The court noted that adjustments could be made for wrongful conduct, but the plaintiff did not establish it enough to justify adjusting the value. The court also decided on the fair market value of the restaurant properties and examined whether discounts should apply for lack of control and marketability.

The case is Gavrielidis v. 80 Seaview Ave., LLC, 2020 Conn. Super. LEXIS 1302; 2020 WL 6781239. A case analysis and full opinion are available on the BVLaw platform.

Damodaran updates his implied ERP in wake of Ukraine invasion

In his blog post on how the crisis in Ukraine is playing out in the markets, Professor Aswath Damodaran (New York University Stern School of Business) updated his implied equity risk premium to 4.73% as of March 16, up from 4.24% at the start of 2022. To that he adds the risk-free rate (2.19%, the 10-year T-bond rate on March 16) to get the long-term annual expected return on equity of 6.92%, which is “still lower than historical norms, but closer to the numbers that we have seen in the last decade,” he writes. He noted that “equities were already under pressure in the weeks before the invasion, as inflation fears surfaced again, and then hostilities have put further pressure on them.” Damodaran’s implied ERP is a forward-looking method, calculated by backing it out from the current market prices and expected future cash flows, which gives an internal rate of return for equities that is analogous to the yield to maturity on a bond.

Deloitte replaces pub on impairments and disposals

Deloitte has published A Roadmap to Impairments and Disposals of Long-Lived Assets and Discontinued Operations, which includes its insights into the guidance in ASC 360-101 and ASC 205-20 on impairments and disposals of long-lived assets and presentation of discontinued operations. This publication replaces the firm’s 2019 publication A Roadmap to Disposals of Long-Lived Assets and Discontinued Operations and has been expanded to address the accounting for long-lived assets while classified as held and used.

Updated versions of two closed-end fund reports for estimating DLOC

Closed-end fund (CEF) data are commonly used to derive discounts for lack of control (DLOC) for closely held holding companies invested in marketable securities. Updated versions (to February 2022) of two sources of CEF data, prepared by Bruce A. Johnson and James R. Park (Partnership Profiles), are now available:

·  “2022 Closed-End Fund Report: Fixed Income Securities.” Use this report to compare privately held family limited partnerships (FLPs) and LLCs that hold money market funds, certificates of deposit, government bonds, municipal bonds, corporate bonds, or other fixed income investments.

·  “2022 Closed-End Fund Report: Stocks and Equity Investments.” Use this report to compare privately held FLPs that hold common stock, preferred stock, mutual funds, REITs, or other corporate equity investments.

Price: $249 each.

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RICS withdraws global COVID-19 valuation practice alert

Because many governments and markets globally have now eased restrictions and protocols relating to COVID-19 and the impact of the pandemic is clearer, RICS has withdrawn its global COVID-19 valuation practice alert as of March 3. RICS is the Royal Institution of Chartered Surveyors, a global valuation professional organization (VPO) whose members are appraisers in various disciplines, including business valuation. RICS issues the Red Book, which contains mandatory rules, best practice guidance, and related commentary for all its members undertaking asset valuations.