November 2020
Valuation “as of” dates are important as in most cases an appraisal is only “good” for a specific date. Most appraisals state that they are only effective as of a specific date and may not be effective for any other date. Anyone who requests an appraisal should make sure that the as of date will be acceptable for their purposes. Although the mere passage of time does not necessarily produce a change in value, events may occur that can change the value significantly. For example, a change in the status of the industry or economy could change the value, as might a change in interest rates.
In some cases the correct as of date is established by statute or case law. For example, for estate tax, the valuation date is the decedent’s date of death, although in some cases the estate may elect the alternate valuation date, which is six months after the date of death. In Missouri, the as of date for marital dissolutions is normally the court date. In most cases, anything that happens after the as of date should not be considered in the value unless the event was foreseeable. Otherwise the value rendered isn’t truly as of that date.
Some people think that the as of date is always the current date, but historical appraisals are very common. For instance, a client might need to establish the basis of an asset as of an historical date in order to determine capital gains taxes. Or, the client may want to value a gift of stock that was made in years past.
Clients will often ask the appraiser “How long is the value good for?” The answer is often that “The value is good until it isn’t.” In other words, the value is good until something happens that causes the value to change. However, it’s better to have a value as of the correct date than trying to argue that nothing has changed since the as of date that would change the value.
In some cases, such as Employee Stock Ownership Plans, the as of date is the year end and is by regulations good for the entire year. Likewise, some companies value their stock every year and use that value for internal transactions. However, values do often change within a year so the resulting value as of the year end might not represent the true value for a particular transaction within the year.
All in all, someone who wants an appraisal should be careful to request the appropriate as of date with respect to the purpose of the appraisal. Otherwise, the appraisal may need to be redone to the appropriate date, which could cost a considerable amount of time and money.
Relevant Court Cases
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Calk v. Calk,
2020 IL App (1st) 182512-U,
No. 1-18-2512
dated October 19, 2020
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Biton v. Kreinis and New Tomorrow, Inc.,
Fourth Judicial Circuit of Virginia Circuit Court
of the City of Norfolk, Docket No.: CL19-7991,
dated July 10, 2020
Recent Business Valuation Articles
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“The Underlying Economic Components of Acquired Goodwill,”
by Thomas J. Linsmeier, Daniel D. Wangerin and Erika M. Wheeler,
dated July 2020
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“Valuing Companies by Cash Flow Discounting:
Only APV does not require iteration,”
by Pablo Fernandez,
dated August 28, 2020
Recent Engagements
- Valuation of the common stock of a lodging operations company
on a controlling interest basis for estate tax reporting purposes.
- Valuation of 100% of the common stock of a specialty road construction
company on a controlling interest basis for sale purposes.
- Valuation of member interests of a mostly real estate holding company
on a minority interest basis for gift tax reporting purposes.
- Valuation of 100% of the common stock of a niche recycling firm
on a controlling interest basis for planning purposes.
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