Thursday, April 23, 2015

Financial Experts in Chapter 11 Bankruptcies - QuickReadBuzzQuickReadBuzz

The assessment of interest rates and appraising the value of a business are assignments not limited to bankruptcy work alone. Most financial experts are familiar with the methods required to perform these tasks. Even in the application of these basic analyses, Chapter 11 bankruptcy may present unusual assignments. This article discusses two unique situations that may arise from these common assignments. The first is the application of the cram down interest rate model when a creditor makes the 1111(b) election. The second considers the concept that the “highest bidder may not be the best bidder” when selling a bankrupt business.

Saturday, October 5, 2013

The art of illusion

Extrapolating the words of John Ruskin, a 19th-century British social thinker, I often say, “It’s not what’s on the page that matters; it’s what’snot on the page that matters.” As fraud examiners, we have been taught to gather documents, review information, interview subjects and then draw our conclusions. While that approach will detect the simplest of frauds, it won’t detect the type of complex financial frauds that are increasingly making headline news.

Tuesday, June 18, 2013

Partner cannot avoid valuation penalty by conceding on other grounds

In a big win for the IRS, the Tax Court refused to grant partial summary judgment to a partner who had conceded his tax shelter case on grounds other than valuation in an attempt to avoid the 40% gross valuation misstatement penalty under Sec. 6662(a). This has been a common method used by taxpayers who have invested in tax shelters, in an attempt to avoid the draconian 40% penalty.

Saturday, June 15, 2013

Why Rules of Thumb are Dangerous – The QuickRead

One Medical Practice Could—Depending on How Rules of Thumb are Applied—be Valued at Several Radically Different Prices. Find Out Why!

Wednesday, June 5, 2013

Not worth the paper they' re printed on

Detecting financial statement fraud is more complex than ever. Convoluted mergers and acquisitions and recent court rulings on goodwill and loan loss reserves complicate fraud examinations. But here are ways to investigate the books and the personalities behind the numbers.
The setting: a corporate chieftain’s mahogany-paneled office.

“What do you have for me?” the CEO asks.

“A potential acquisition that could help cover our tracks on other matters,” his CFO replies and hands over a spreadsheet. “One complication: They might’ve been goodwill hunting without a license.”

Sunday, May 26, 2013

Expert Witnesses: Is Your Internal Testimony Consistent? Consider This Cross-Examiner Attack! – The QuickRead

When the case comes down to ‘expert versus expert,’ one important question is, what makes jurors believe one expert witness over another?  Applying the rational model of law, we would like to think that jurors would evaluate the credentials, the methodology, and the strength of the conclusions offered, and compare the competing experts based upon the appropriate standards of the field. 

What a Matrimonial Attorney Needs From a Financial Expert – The QuickRead

Business appraisers and forensic accountants replaced the private investigator as the key expert in divorce cases when states changed their divorce laws from a fault based system to a no-fault system. The investigation and determination of a party’s income available to pay support and the valuation of a closely-held business or professional practice are often the most important economic issues a divorce case. The selection of the financial expert is therefore a key decision which should be made early on in the case.

Wednesday, April 17, 2013

When is the cost approach acceptable for computing the value of a lost business? | Business Valuation Law

After an explosion destroyed a waste treatment facility for an oil refinery, the plaintiff insurance company paid the owners $6.1 million and then sued the defendants for causing the damages. The defendants admitted liability; the only issue was the fair market value of the plant just before the explosion, using the applicable “willing buyer, willing seller” standard.

IRS will not let investors off the hook in overvaluing assets


Individuals should exercise prudence in evaluating transactions designed to generate paper losses on federal income tax returns—so-called tax shelters. And in particular, taxpayers should focus on the value of the underlying asset reported on the return and ask whether that valuation makes sense. In an unusual move, the U.S. Tax Court recently overturned its precedent to side with the IRS and hold that an investor is not off the hook for steep penalties if valuation is wrong.
Valuation plays a key role in tax shelter cases, as valuation is one of the major devices used in abusive tax shelters (McCrary, 92 T.C. 827, 863 (1989), (Gerber, J., dissenting)). Courts look at the fair market value of an asset claimed on a tax return to determine whether a business transaction has economic substance and will be respected for tax purposes. As explained by the Ninth Circuit, “[a] fundamental issue in tax shelter cases is whether the property has been ‘acquired’ at an artificially high price, having little relation to its fair market value” (Estate of Franklin, 544 F.2d 1045, 1046 n. 1 (9th Cir. 1976), aff’g 64 T.C 752 (1975)).

Wednesday, January 23, 2013

Cash Me if You Can

In a fictionalized recent case, our client won a legal settlement and we were asked to help determine if the defendant had the ability to pay it. The defendant claimed they had no resources, no cash to pay the claim. Our client told us they were prepared to take a "haircut" but wanted us to find as many assets as we could.  We knew that cash would be the quickest and easiest asset to satisfy the settlement. Working with our client's attorney, we were able request a long list of documents and we concentrated on locating the cash. 

Tuesday, November 20, 2012

Q&A: An Insurer’s Take on Business Interruptions After Hurricane Sandy - The CFO Report - WSJ

Business interruption insurance policies and business continuity plans have evolved in recent years after the Japan tsunami and Thai flooding interrupted supply chains around the world. That means companies are more knowledgeable in their responses to Hurricane Sandy, for instance, about how to seek advances from insurance companies to help them get quickly back on their feet. CFO Journal asked George Stratts, head of AIG Property Casualty’s Global Property Division, what companies have learned, and what they can do now to make things easier for themselves. Among his insights, Stratts says companies have learned to use more forensic accountants throughout the insurance process, and that right now it is important for companies to document losses and follow strong business continuity plans

Wednesday, November 7, 2012

Fraud Magazine: Asset Recovery, November/December 2012

David Zweighaft, CFE, CPA, Managing Partner, DsZ Forensic Accounting and Consulting Services, discusses how to conduct an asset recovery search and the tools he uses.