5 Tips on How to Avoid Under-Valuation Penalties on your Florida Holding Company

Do you or your family in Florida own all or part of a holding company?  One of the most complex issues in anyFlorida estate that owns a holding company is the valuation of its assets upon death of the owner.

The valuation is for IRS tax-reporting purposes and it is extremely important to be accuratewhen reporting these figures.  Why?  If not, the IRS could hit your Florida Estate with a penalty up to 20% of the actual valuation of company. We saw this happen in the recent case of Estate of Richmond v. Commissioner, T.C. Memo 2014-26, the IRS issued a $1,141,892 penalty due to under-valuation.

Here are 5 tips to help you avoid under-valuation penatlies on your Florida estate:

1. Choosing the correct valuation method is crucial. The correct choice depends upon whether the asset produces a predictable income stream or if it is difficult to value the assets. There are three methods that may be used for valuation of stock for Florida estate taxes:
2. Income Capitalization Valuation Method. If the asset produces a predictable income stream then the income capitalization valuation method may be appropriate. Income capitalization valuation method is usually used for a closely held operating company where the stock is not publicly traded.
3. Capitalization-of-Dividend Method. On the other hand, if a company is difficult to value then the capitalization-of-dividend method, which is based entirely on the future general economy, performance, and dividend, may be acceptable.
4. Net-Asset-Value Method. Of the three valuation methods, the more widely method used in estate valuations by US Tax Court is the net-asset-value (NAV) method. Net-asset-value method is used for holding companies with marketable stock such as used in the recent Estate of Richmond v. Commissioner United States Tax Court case.
5. If you are unsure about your valuation, or which valuation method to choose for your Florida estate’s holding company, then use a CERTIFIED Florida Appraiser. Use of a certified Florida estate appraiser enables you to take advantage of the “reasonable cause” defense which will help waive any penalty by showing you reasonably relied on the valuation of a certified appraisor, and thus acted in good faith when submittig your tax documents.  If a non-certified appraisor is used, this defense is gone!  That was the issue in the Estate of Richmond case above.

See http://www.pankauskilawfirm.com/ for videos and information on Wills in Florida, Florida Probate Law, Estate Planning, and Estate Administration in Florida.