Tax Planning and Reporting Opinions

Enterprise, minority interest and non-marketable minority interest business and asset valuations

Companies, individuals, limited partnership and families often require independent valuations for numerous reasons: tax planning; mergers, acquisitions, redemptions of shareholders or member's interests; configure buy/sell equity incentives; structure ESOPs; and reorganizations of businesses. In many cases ownership in assets or investments are often held in illiquid securities or interests with "non-marketable" characteristics. The Salter Group's ability to understand and determine the value of a minority interest in a business, an assets or a security interest has been a keystone to our expertise since its founding. With an array of analytical tools, transaction experience and unfettered objectivity, we have the ability to forecast, value minority interests and illiquid securities across an array of assets classes.

Equity/Share Based Incentives and Compensation For Services - IRS Sec. 409A

Non Qualified Deferred Compensation Plans - IRC Sec. 409A

In October 2004, Congress established IRC Section 409A to effectively cause companies to establish defensible valuations of equity used to pay parties providing services to the company.

Since 409A is currently effective, companies should be sure to accurately value their common stock for any new equity award grants. Since the IRS has generally given companies until December 31, 2008 to be in compliance with 409A with respect to past grants, companies should also carefully consider whether past equity award grants were at fair market value before the opportunity to "fix" those grants runs out.

Equity-based compensation, such as nonqualified stock options, stock appreciation rights, stock units and phantom stock are subject to 409A.

The key requirement for a nonqualified stock option or stock appreciation right to be 409A exempt is that it has an exercise price no less than the fair market value of a share of the company's stock on the grant date.

Failure to meet 409A standards triggers immediate tax on the value of the deferred compensation, plus a penalty equal to 20% of the deferred compensation, plus interest at the IRS underpayment rate plus 1% which accrues from the first day of deferral.

Prior to 409A, a company's board of directors could make good faith determinations of fair market value when granting equity-based incentives. Under 409A companies must formally value their common stock for these purposes or face the risk of exposing their employees and themselves to penalties should their estimate be wrong. As such, estimated values based on "rules of thumb" used in venture-capital or private-equity based transactions must be demonstrated to be fair market value.

The Salter Group provides cost-effective Wall Street credible independent valuations that enable compliance with 409A. The Salter Group has distinguished itself as one of the leading independent financial and strategic advisory firms with specialties in economic analysis, transaction support, corporate development and intangible asset valuations. With more than 650 engagements representing $70 billion plus in asset values, The Salter Group is uniquely positioned to serve its diverse clients throughout the world.

Incentive compensation, options and "cheap stock" - SFAS 123R

Employee Incentive & Option Valuations - SFAS 123 and 123(R)

All public and non-public companies are required to count stock-based compensation as a cost against earnings in accordance with ASC 718 previously referred to as SFAS 123R.

In most public and non-public companies, share-based equity incentives to employees are based on a fair value standard as of the grant-date.

For the calculation of stock option expense associated with stock option awards, the standard recommends the use of lattice models as compared with Black-Scholes models because lattice models divide the value into discrete periods with specific values. This approach enables the option to be expensed over several years corresponding to a recipients expected or minimum employment period, vesting schedules or other characteristics.

For privately held companies, the determination of the key inputs (such as the underlying value of the equity security) to be used in stock option expense calculations is not readily apparent since the company’s stock does not trade. As such, an assessment by an independent party of the value of the underlying equity security is key to developing expense calculations which can withstand the scrutiny of an audit firm or the SEC. Further, given the inter-related nature of IRC 409A with ASC 718 for most private companies, an understanding of the differences in the application of the fair value standard for financial reporting compliance and the fair market value standard for tax reporting compliance is key to creating a defensible and credible opinion. Our staff has completed well in excess of 300 common stock and cheap stock valuation engagements and has defended our work with key reviewers of work including the SEC for a number of IPO registrants.

The Salter Group provides cost-effective, Wall Street credible, independent valuations that enable compliance with standards ASC 718 by providing independent objective fair value opinions covering the enterprise, specific stock-based incentive securities and the associated expensing of these incentives over applicable time periods. As a leading independent financial and strategic advisor, The Salter Group assists companies, audit committees, company accountants, investment banks and related parties by providing credible independent and objective opinions.

Estate and Gift Tax Opinions

The high tax rates in the federal transfer tax system make wealth preservation of paramount importance for high-net-worth individuals, including owners of closely held businesses. We assist high-net-worth individuals, family members and business owners in preserving their wealth. We work closely with attorneys, certified public accountants, private bankers and financial planners to forge pro-active, coherent and effective estate and gifting plans for effective asset management.

The Salter Group provides the following types of services to assist tax attorneys, certified public accountants, private bankers, financial planners and their clients, as well as the Internal Revenue Service:

Valuations of interests in closely held business or other securities in support of gifting or estate tax returns.
Discount studies for family limited partnerships, limited liability companies or other estate planning vehicles.
Litigation support and expert witness testimony in IRS appeals, or other tax court or legal matters.

We also perform business valuations for equity, debt and securities in privately held companies. Our valuations are used in:

Estate and gift tax planning
Estate and gift tax return filings
Buy-sell and cross-purchase agreements
Key person insurance funding
Recapitalization of common stock to preferred stock or non-voting common stock
Charitable gift transactions such as charitable remainder trusts

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