Buy/Sell agreements / Discount for built in capital gains tax liability / Earnings vs. cash flow

Buy/Sell agreements - Slay the hog and eat the cake    There are many reasons to enter into owner agreements or business entity governance documents, including buy/sell provisions. However, if too much emphasis is placed on a limited number of issues, other objectives may be undermined.

Discount for built in capital gains tax liability - Finally good news for estate tax     In the 2005 case of Estate of Jelke et al v. Commissioner, Frazier Jelke III owned 6.44 percent interest in a closely held, investment holding company that owned appreciated marketable securities. The U.S. Tax Court decided to allow only a partial discount for built-in capital gains tax liability indexed to reflect present value on the date of Jelke's death using the court's projections as to when the assets would likely be sold. This also applies to when the tax liability would likely be incurred instead of the estate's position to reduce the net asset value of the holding company dollar-for-dollar equal to the built-in capital gains tax liability.

Earnings vs. cash flow      Often, when we present a business owner with a fair market appraisal report of his/her business, we get a response such as, "This is all my business is worth?" The owner then proceeds to plead his/her case by showing us the income statement with how much profit is reported and how much is being paid in taxes. After listening to these pleas, we direct the owner to the statement of cash flows, which illustrates the lack of cash being generated from the operating, investing, and financing activities of the business.