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Kress Case Signals Major Change in Valuing Pass-through Entities for IRS Reporting

Kress Case Signals Major Change in Valuing Pass-through Entities for IRS Reporting

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May 2019

Can the earnings of a pass-through entities be considered tax-affected for the purposes of determining the company’s value? The United States District Court-Eastern District of Wisconsin recently issued a much-anticipated decision in Kress regarding the valuation of an S corporation for IRS gift tax purposes. Specifically, the decision in Kress v. U.S., Case No. 16-C-795 called for the earnings of an S corporation to be tax-affected in determining its value. In other words, the IRS allowed income taxes to be considered in the valuation of a pass-through entity (which produces a lower, and more accurate, value than if income taxes were ignored in the valuation process).

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