Inflation Reduction Act
September 2022
The recently passed Inflation Reduction Act (“Act”) has at least two provisions that could potentially affect the values of businesses. The first is a 1% tax based on the net amount of shares repurchased from shareholders during each year. According to data from Charles Schwab, buy-backs have surged in recent years. In the first quarter of 2022, the rolling four-quarter sum of buy-backs among S&P 500 index companies reached nearly $1 trillion. However, buy-backs reached a peak at 0.7% of the market size in 2007. At only 0.7% of the market, a drop in the level of buy-backs due to the Act will not likely have a significant impact on the overall market. However, if a company has a track record of buy-backs that causes an expectation of future buy-backs, the value of the business could be negatively affected if the Act causes a reduction or elimination of buy-backs by the subject company.
The second provision of the Act that could potentially affect the values of businesses is a corporate minimum tax rate of 15% on book income reported to shareholders, excluding deductions and tax credits. However, the tax only applies to corporations with at least $1 billion in income. It was estimated that the number of companies that would be affected by the tax is relatively small. One estimate was that the tax would only affect 127 U.S. companies.
In summary, it appears that the Act will not have a significant impact on the value of the overall stock market and business values in general, although a relatively low number of companies might have their values negatively impacted.
Relevant Court Cases
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Logue v. Logue,
Court of Appeals of North Carolina,
No. COA21-485,
filed September 30, 2022
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A.A.O. v. A.M.O.,
Court of Appeals of Ohio,
Nos. 110338 and 110349,
dated August 11, 2022
Recent Business Valuation Articles
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“Deconstructing Private Equity Buyout Valuations,”
by Bobby V. Reddy,
dated August 25, 2022
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“Equity Value and Volatility,”
by Moon Hoe Lee,
dated September 1, 2022
Recent Engagements
- Valuation of the class B units of a meat
production company on a minority interest
basis for gift tax reporting purposes.
- Valuation of the common stock of an
investment holding company and an
equipment leasing company on a minority
interest basis for estate tax reporting purposes.
- Valuation of member interests in a niche
contracting firm on a minority interest
basis for issuance/income tax reporting purposes.
- Valuation of limited partnership interests
of hotel holding limited partnerships on
minority interest bases for purchase/sale purposes.
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