In Uncategorized on 06/20/2017 at 00:51

Baseball season is in full swing, with the All-Star break soon to arrive. So I take my text from a phrase often heard in that context, as Judge Pugh (and I) deal with W. Zintl Construction, Inc., 2017 T. C. Memo. 119, filed 6/19/17.

WZ is a C Corp, owned by the eponymous W and wife Ann. WZ owes about $6.5 million in self-reported FICA-FUTA-ITW over three years. IRS hits WZ with NITLs and NFTLs, and WZ bangs in a 12153 and seeks OIC, claiming liquidation value of $1.5 million and offering $1 million to settle. The SO blows that one off, claims as a going concern WZ is worth $5 million. WZ tries to borrow this amount, but can’t.

WZ petitions, claiming the SO valued the C Corp cum tax obligations, but no one would buy the firm with those obligations unpaid. IRS claims IRM pt. (Sept. 30, 2013) lets the SO use going concern value.

So the issue is whether to sell off the assets or sell the entire business.

This case goes up on stipulated facts (Rule 121), as no one disputes the numbers, only which set of numbers to apply.

WZ claims going concern value is never apposite where the taxpayer is the business, because IRS can never sell the business. Judge Pugh need not go there, even when IRS says “Oh, yes we can.”

“In effect petitioner asks us to decide that use of the going-concern value of a business is never appropriate when the business being valued is the taxpayer. We cannot so conclude, nor need we, because we find that SO A’s calculation of RCP was faulty for a different reason: In calculating petitioner’s RCP, SO A increased petitioner’s going-concern value by the amount of the unpaid tax liability that the appraisal took into account in its calculation of value and based his determination of RCP solely on this modified value.

“This modification to the value at first blush seems logical. Reducing petitioner’s going-concern value by its tax liability when determining how much of this tax liability petitioner can pay would seem to double count the tax liability and provide a boon to a business taxpayer whose tax debt is part of the business being valued. It is this tax liability that will be satisfied with the OIC, after all. The problem is that the going-concern value is intended to give some indication of the value of petitioner as a continuing business, that is, what a third party might pay to buy petitioner as a whole, including all of its assets and liabilities. No third party would buy petitioner without taking into account the unpaid tax liability. And the record shows that petitioner could not obtain financing for the modified amount either. This highlights the logical difficulty of using going- concern value–which presumes that a taxpayer can sell itself–to determine RCP.” 2017 T. C. Memo. 119, at pp. 11-12. (Name omitted).

Judge Pugh’s balancing act doesn’t end there. She doesn’t decide that going concern value is never relevant where the taxpayer is the business being valued. Neither does she let WZ off the hook by allowing the $1 million OIC.

SO A wasn’t reasonable in denying the OIC by leaving in most of the tax liability as part of the RCP.

So back to Appeals for WZ and SO A.

Note we see a similar argument in the Section 6901 transferee cases:  no one would buy a business at full price when a yuge tax liability is hanging over its head.



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