The Application of a Predictive S Corporation Premium Model and the Behavioral Considerations in Acquisitions of Private Corporations

Abstract

The valuation of S Corporations has been a source of great controversy since the beginning of the recent decade when the US Tax Court ruled in Gross v. Commissioner that the net income of S Corporations should not be tax-affected in the valuation process. The benefit of removing a level of taxation has been translated by the Tax Court as an inherent increase in value for S Corporations regardless of transaction specific conditions that may or may not warrant a valuation premium. This paper addresses the issue of when an S Corporation premium exists though the application of a moderated multiple regression model developed by this author in prior research using actual transaction data. The objective of this paper is to introduce the application of the model in various transaction specific conditions when valuing S Corporations.