Valuations in Respect to the COVID-19 Pandemic

Recently, the American Institute of CPAs issued guidance — VS-100 Subsequent Events — that provides additional information about valuation reports.

A business valuation establishes the dollar value of a business based on a combination of the income, assets, and market methodologies. It also provides a better understanding of the true profitability of a business.

Valuation reports are only as of one specific day and can only use information that is known or knowable as of that date.

The AICPA’s VS-100 states that subsequent events can be disclosed for informational purposes but cannot be used in the conclusion of value unless such events were known or knowable at the valuation date.

In relation to the current pandemic situation, COVID-19 was generally known in February of 2020. So, if someone were to die between August 2019 and January 2020, electing the alternative valuation date (IRC Sec 2032(d)) six months after their date of death could be useful if there were a taxable estate, as this would likely lower the value of many assets.

If the estate was not taxable and a basis step were desired, likely you would not elect an alternative valuation date.

Moving forward, alternative valuation dates cannot be used to raise the value of an estate.

As an example, if someone died in March or April of 2020, and markets recovered six months later, the alternative valuation date on IRS Form 709 Estate tax return could not be used to obtain a higher value for the basis of a step-up.

A valuation analysis by a Certified Valuation Analyst at Casey Peterson, LTD can help a buyer or a seller make a wise business decision and develop a business financial plan that relates to the value of a company. A valuation also offers guidance for business decisions and investments and is a critical management and planning tool.

If you would like to enlist the support of one of our valuation experts to help you confidently make business decisions or resolve a dispute, reach out today.

This communication is intended to provide general information on legislative COVID-19 relief measures as of the date of this communication and may reference information from reputable sources. Although our firm has made every reasonable effort to ensure that the information provided is accurate, we make no warranties, expressed or implied, on the information provided. As legislative efforts are still ongoing, we expect that there may be additional guidance and clarification from regulators that may modify some of the provisions in this communication. Some of those modifications may be significant. As such, be aware that this is not a comprehensive analysis of the subject matter covered and is not intended to provide specific recommendations to you or your business with respect to the matters addressed.