Tax & Compliance Valuation

Knowcraft Analytics provides comprehensive valuation services for tax and compliance purposes to valuation and advisory firms in the US. The offerings include IRC 409A, ESOP (IRS 401A), gift and estate tax, and S-Corp election, among others.
Tax planning and compliance are critical components of a business, which necessitate the valuation of businesses and securities. In a dynamic regulatory environment with frequent changes in tax laws, it is imperative for appraisers to understand the nuances of tax-related provisions while developing a defensible valuation. Our valuation experts possess rich experience in dealing with inherent complexities surrounding tax valuations. Our team stays abreast of the recent developments in the tax rules and decodes their impact on valuation. Our rigorous valuation analysis, backed by profound tax, financial, and industry knowledge, can withstand the scrutiny of tax and regulatory authorities such as the Internal Revenue Service (“IRS”).

IRC 409A

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A 409A valuation is a process of determining the value of the Company’s common stock to meet the legal requirements associated with issuing deferred compensation to the employees under the Internal Revenue Code (“IRC”) 409A. A 409A valuation needs to be performed at least once every 12 months or earlier in case of significant changes, such as a new financing round or a change in the Company’s business operations.

For early-stage companies, stock options or deferred compensation play a significant role in attracting and retaining the right talent. Since most companies have stock options as an integral part of their employee compensation structure, understanding the importance of the right valuation of stock options and conformance to IRC 409A is essential. Undervaluing stock options under 409A leads to significant penalties for employees. In contrast, overvaluation leads to loss to employees as they receive less income due to a higher exercise price. Hence, it is of utmost importance that the valuation of deferred compensation is performed by a competent, independent professional appraiser with expertise in private company valuations and a sound understanding of the nuances of IRC 409A.

At Knowcraft Analytics
, we provide end-to-end 409A valuation services of the highest quality to some of the leading valuation advisory firms in the US. Our team of seasoned valuation professionals is geared to help you maintain your quality of services while providing scalability, at a very cost-effective offshore pricing model. Our strong internal processes and controls ensure that our 409A valuations are robust and defensible to the auditors and IRS, as well as very fair and transparent to clients’ employees. All these factors together ensure that your clients sail through their future tasks, whether expensing, audits, M&A, or an IPO.

Employee Stock Options

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ESOPs, pursuant to the Employee Retirement Income Security Act (“ERISA”) of 1974, are regulated by the Department of Labor (“DOL”) and the Internal Revenue Service (“IRS”).

Over the years, ESOP plans have evolved to become increasingly complex in nature to ensure compliance with the laws and to tie in with the reported financials of companies. This continued evolution of ESOP agreements has caused valuation experts to be on their toes and remain constantly updated with the latest regulations, court case rulings, and industry best practices to meet newer challenges.

Knowcraft Analytics provides comprehensive ESOP-related services, including deal-related fairness opinion, deal structuring, annual ESOP valuation plan revisions, expensing advice, option redemption and cancellations, as well as responding to assessment queries by the auditors, IRS and DOL.

Gift & Estate Tax

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A business, an asset or an estate has the potential to ‘live on’ forever, but not its owner. Therefore, the business owner must establish an effective succession plan well in advance. Any estate valued over $12.92 million (in 2023) left intestate is subject to federal estate tax of up to 40% unless its ‘gifting’ to the legal heirs is properly planned for. One of the key elements of successful estate planning is the minimization of estate tax through a proper valuation of estate assets.

The valuation report for estate and gift tax purposes is subject to IRS review. Hence, it is essential that the valuation is performed by a qualified appraiser with expertise in gift and estate tax valuations and by adhering to the appropriate IRS guidelines.

Our valuation experts consider all the relevant factors, such as timing of gifting, control and marketability discounts, multiple ownership structures and appropriate business valuation methodologies, to provide your clients with an insightful estate valuation report compliant with the IRS guidelines.

S-Corp Election

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A C-Corp entity elects to convert into an S-Corp primarily for two key taxation considerations:

  • Unlike a C-Corp, an S-Corp, being a ‘pass-through’ entity, need not pay tax at the company level or on the dividends distributed; instead, its members pay taxes on their share of profit based on their individual tax rate;
  • Distribution of ESOPs is tax-exempt for an S-Corp entity.

Pursuant to the IRC Section 1374, a corporation opting for an S corporation election requires a valuation to determine the built-in gain. Built-in-gain is the gain in asset value from the date of the S corporation election. The timing of this election is a key decision to be made by business owners as they need to pay taxes on the differential between the fair market value and tax basis of assets as of the conversion date.

It is very evident how complex and tricky this S-Corp election can be for your clients. While inaccurate valuation could put the business owner in jeopardy with higher tax liabilities, a thorough valuation analysis would help save taxes in the long term.

Why Choose Knowcraft for Valuation?

Executed Over 10,000 Engagements
Acted as an Advisor to Help Clients Venture into New Service Offerings
Reduced Turn around Time by ~40%
Helped Scale Businesses from a Single-Member Team to a 40+ Member Strong Team
Enabled Business Growth through 50%-100% Increase in Revenue and 30%-50% Improved Margins

Case Studies

Contingent Consideration Valuation

Contingent Consideration Valuation

THE CLIENT AND THE ASK: A pharmaceutical company (the “Acquirer”) acquired a biotechnology company (the “Company”) in exchange for an upfront payment and certain payments contingent upon successful achievement of future regulatory and sales milestones for certain...

Forecasting and Valuation

Forecasting and Valuation

THE COMPANY AND THE ASK: The Company is a technology company with a business proposition to provide diagnostic services to rural India and reduce the turnaround time of getting the report from 24 hours to 1 hour. The Company was operating using multiple business...

IRC – 409A Valuation of Common Stock

IRC – 409A Valuation of Common Stock

THE COMPANY: A biotechnology company (the “Company”) engaged in the development of an Influenza vaccine as its flagship product with others in the pipeline. The lead drug was in the pre-clinical phase of development, as of the date of valuation. The Company had raised...

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