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Jones Day Argues New Approach To Valuation In Recent Tax Court Cases
Jones Day Argues New Approach To Valuation In Recent Tax Court Cases

Forbes

time15-06-2025

  • Business
  • Forbes

Jones Day Argues New Approach To Valuation In Recent Tax Court Cases

Atlanta, Georgia, Jones Day, multinational law firm office building. (Photo by: Jeffrey ... More Greenberg/Universal Images Group via Getty Images) Tax Court Judge Goeke's opinion in Beaverdam Creek Holdings LLC pairs nicely with Judge Lauber's opinion in Ranch Springs LLC, which I recently covered. Both involve syndicated conservation easements on mining property in the South (Georgia and Alabama respectively) and extensive discussion of the discounted cash flow method of valuation. Another thing they have in common is the law firm representing the petitioner - Jones Day - and an innovative approach to valuation that they have developed and once again failed to sell a Tax Court judge on. Charles E. Hodges II of Jones Day has written me that both cases will be appealed. Most significantly both cases present a theory of valuation that would be game changing if it prevails on appeal. The property in question was an 85 acre tract in Oglethorpe County Georgia. It was owned by Service Granite Co. Inc (SGC) which had mined granite on it till 2006. It then leased the mine to Lexington Blue Granite Inc. Lexington, which had some ownership in common with SGC stopped mining sometime in 2008. North Ridge Quarries took up a lease and operated from 2008 to 2012. SGC ended up being owned by Lita Miller, who had no experience in the granite business. She was troubled by loans that were associated with SGC. In 2017, she heard from Lee Ellis of Strategic Seek One LLC expressing interest in the property. Mr. Ellis had identified the property from studying aerial maps. Ultimately they agreed on an effective purchase price of $225,000. Beaverdam was formed on June 29, 2017 with SSO as its manager. SGC contributed the property to Beaverdam in exchange for a 99% interest. SSO contributed $10,000 for a 1% interest. SSO agreed to pay SGC $228,000 for a 97% interest in Beaverdam leaving SGC with 2%. My inference is that these maneuvers were to give Beaverdam a tack on the holding period of the property so that the contribution could be made in 2017. Beaverdam Creek Investors LLC (BC Investors) was formed on August 23, 2017. The manager of BC investors was Strategic Fund Managers (SFM). Its purpose was to invest in Beaverdam "ostensibly" to either hold for appreciation or contribute a conservation easement. There were 183 units at $25,000 each for a total of $4,575,000. $950,000 of that was designated to be paid for the 97% interest in Beaverdam and $2,260,000 would be contributed to Beaverdam and $150,000 to a BC investors operating reserve. The balance went to offering expenses, consulting fees to Strategic Group and legal and other expenses. On December 27, 2017, SFM notified the partners that it had determined that the conservation strategy should be followed. The members had one day to affirm or reject the determination. Of those who voted 57 went for conservation and 2 for holding for investment. On December 28, 2017 Beaverdam conveyed an easement on the property to Foothills Land Conservancy. On its return for the short period December 28, 2017 to December 31, 2017 Beaverdam claimed a charitable contribution of $21,972,000 for the easement. The opinion includes a discussion of burden of proof and whether the appraisal was a qualified appraisal. The burden of proof did not shift from the taxpayer and the appraisal whatever its flaws was a qualified appraisal. The contentious important issue was valuation. Since you generally can't find a lot of buying and selling of easements the valuation is usually done by the before and after method. The value of the property before the easement encumbers it has the value of the property as encumbered subtracted from it. Usually it is the "before" value that is at issue. In this case, both parties agreed that the after value was $106,750. When it came to the before value Judge Goeke agreed with the taxpayer that the highest and best use was granite mining. "We agree with BC Investors that operation of a quarry on the easement property was financially feasible in December 2017. Although many of respondent's points are fair, the facts favor BC Investors' position. We are especially persuaded by the long history of quarrying that has taken place on the property, the property's lack of use for other purposes, and Mr. Krasinski's agreement with BC Investors' position." For the before value the IRS argued $215,000 and the taxpayer was looking for at least $23 million. Judge Goeke was not satisfied with either of those answers. He did not, however, split the difference. When it came to method, IRS was looking at comparable sales, but he did not think the IRS experts included enough information regarding quarry/granite features of the comparable properties. BC Investors argued that "the income method is the sole valuation method that can determine the fair market value of what Beaverdam Holdings sacrificed: the valuable granite that could be extracted and sold". Judge Goeke' overall assessment was harsh: "While we do not completely agree with respondent's position, it is not unreasonable. On the other hand, BC Investors' position is absurd". He goes on "... because the valuation BC Investors argues for is completely untethered from reality, it produced no sales data that remotely supports its DCF analyses. BC Investors asks us to trust speculative, unconvincing business valuation projections over the accumulated knowledge of the market in the 'Granite Capital of the World'." "BC Investors erroneously equated the (overstated) value of a hypothetical business to the fair market value of the easement property. Respondent advocated use of the comparable sales method, but his experts could have included more information regarding quarry/granite features in their comparable sales data. Considering the evidence, we value the easement property on the basis of our own examination of the record." Judge Goeke's examination of the record yielded a before value of $300,000. Subtracting the agreed after value makes for a deduction of $193,250. He also ruled that the 40% gross valuation penalty applied. The allowed deduction was about 1% of the claimed deduction of $21,972,000. When I first heard from people who were planning to syndicate conservation easements, I thought the idea was absurd. If they were going out buying property, they would generally be paying fair market value more or less and an easement is worth a fraction, possibly a large fraction, of the fair market value. The argument that was subsequently made by the industry was that an easement was giving up future value that might not be reflected in what the property would change hands for currently. Until recently, though, as far as I can tell, nobody was making any argument of that sort in court. That is what makes this case and Ranch Springs LLC so special. Jones Day was making an argument that would account for property being valued for a conservation easement at a multiple of the value that it had recently changed hands for. If you want to dive deeply into this here are two sources. One is an article in Bloomberg Tax - The Tax Tail Can't Wag The Valuation Dog: Five Key FMV Rules. Mr. Hodges is the lead author. The other is the Jones Day brief in the case. The argument is that in order for a sale to be comparable, you have to consider not only the physical characteristics of the property, but also the bargaining posture of the seller and buyer. They use the acronym BATNA (best alternative to a negotiated agreement) to describe the bargaining position. Beaverdam's BATNA was operating a quarry for a present value of $23 million. Lita Miller who let go of the property for less than 1% of that was not in a position to operate quarry so that sale was not comparable. Similar reasoning is applied to the other sales, the IRS put forth as comparable. In the Tax Tail Can't Wag The Valuation Dog article, the authors discuss the concept of "fair" in "fair market value". They argue that to be fair, both the hypothetical buyer and seller must be participants in each of the markets in which the property could trade. "Take for example, real property that could be put to use as either farmland (a less valuable use in this hypothetical) or commercial real estate (a more valuable use) and the seller is a farmer and buyer is a developer. The farmer may lack the experience and capital, or otherwise, to exploit that potential commercial use. Thus the farmer - with limited development knowledge and unable to commercially develop the property himself - may accept a price that is indicative of the property's continued use as a farm, or a reduced value because of his inability to commercially develop the property. In this hypothetical, the price at which the property changed hands does not represent a "fair" approximation of the value of the property." The implications of this approach are breathtaking. Comparable sales are a preferred valuation method, but if Jones Day is right in Beaverdam and Ranch, comparable sales may be very rare. Neither of the Tax Court judges who engaged with this is impressed by the theory, but I am impressed that Jones Day managed to come up with anything that supports the easement syndication industry's view of the world. I am looking forward to see what the appellate court makes of it. Mr. Hodges wrote me that as he sees it the Tax Court with its ruling that discounted cash flow is valuing a business rather than the underlying land has effectively eliminated the highest and best use inquiry.

Indiana board of trustees unanimously approves resolution to indemnify Brad Bomba Sr.
Indiana board of trustees unanimously approves resolution to indemnify Brad Bomba Sr.

Indianapolis Star

time12-06-2025

  • Health
  • Indianapolis Star

Indiana board of trustees unanimously approves resolution to indemnify Brad Bomba Sr.

BLOOMINGTON — The Indiana University board of trustees unanimously approved a resolution Thursday to indemnify former men's basketball team physician Brad Bomba Sr. Bomba, who died May 9 at the age of 89, spent nearly three decades working as a contracted physician for his alma-mater. His tenure has become the subject of a federal class action lawsuit filed by a group of former IU players in October. Former Indiana players including Haris Mujezinovic and Charlie Miller have alleged Bomba "routinely and repeatedly" subjected them to "medically unnecessary, invasive, and sexually abusive rectal examinations' during their annual physicals. Probe results: Law firm finds that former Indiana basketball team physician didn't act 'in bad faith' Indiana hired Jones Day to conduct an independent investigation into Bomba's conduct when the allegations surfaced. The law firm released an 874-page report in May that concluded Bomba did not act in "bad faith" or with "improper purpose" in conducting digital rectal examinations (DREs) as part of the annual exams he performed. Jones Day interviewed close to 100 people, including multiple student-athletes from each decade that Bomba served as team physician, and reviewed more than 100,000 documents spanning six decades, as well as 10,000 emails. Per university policy, current and former employees acting on the behalf of the school are entitled to indemnification as long as they were acting in 'good faith.' "As a result of Jones Day investigative findings I've determined that Dr. Bomba meets the criteria to be an indemnified person in accordance with the board's indemnification resolution," the board's general counsel Tony Prather said Thursday. After Prather's brief introduction of the resolution, the board voted on the measure without any debate. While Bomba isn't a named defendant in the ongoing ligation, the indemnification resolution means Indiana will cover (and likely reimburse) Bomba's estate for any legal fees they incurred and any judgement or settlement costs he would be liable for. More: What's next for former Indiana basketball players who filed federal lawsuit against IU? Bomba was deposed in the case via video conference last year — he invoked his fifth amendment against self-incrimination more than 45 times — after a magistrate judge ruled he was component to testify. The court initially ruled Bomba would have to sit for a follow-up deposition for improperly invoking his fifth amendment privilege, but reversed course after his guardian, Joseph Bomba, submitted an affidavit from a doctor who examined his father and recommended him for hospice care. On June 6, the magistrate judge overseeing the case recused himself citing a heavy workload. The attorneys representing Indiana University and former basketball trainer Tim Garl — Garl was added to the lawsuit as a defendant in an amended complaint — have each filed motions to dismiss the case that are still pending before the court. There is a separate group of unnamed former players represented by Michelle Simpson Tuegel planning to pursue litigation against Indiana University related to similar allegations against Bomba. However, that lawsuit had not yet been filed. The Herald-Times' Brian Rosenzweig contributed to this report.

Henry VIII, Sir Thomas More, And The Rule Of Law
Henry VIII, Sir Thomas More, And The Rule Of Law

Forbes

time12-06-2025

  • Business
  • Forbes

Henry VIII, Sir Thomas More, And The Rule Of Law

The Rule Of Law Remains A Trending Topic In 2025 America. The flurry of executive orders issued by President Trump continues to impact many facets of American life, including the federal government, higher education, transportation, and the environment. Perhaps the most telling objectives of the Trump administration's sweeping directives have been orders issued to a number of major law firms in the United States. Business people, paperwork and planning in office meeting, collaboration and teamwork for proposal. ... More Employees, talking and documents for finance review, support and briefing in boardroom for project To date, the Trump administration has had notable tensions with such firms as Perkins Coie, Covington & Burling, Jones Day, Sidley & Austin, and Kirkland & Ellis. While the details of the orders issued to these firms have nuanced variances, they share the generalized requirement that the firms refrain from certain litigation and provide pro bono services to the administration. Failure to observe these mandates would result in sanctions that would severely impact these firms' practice of law and business viability. To avert sanctions, a number of firms, including Paul Weiss, Skadden Arps, Slate, Meagher & Flom, and Cadwalader, have reached settlements with the administration. Other law firms, such as Perkins Coie and WilmerHale, have challenged the administration's orders and petitioned federal courts to bar enforcement of these orders that, in their view, are retaliatory in nature and abridge their right to free speech and engage freely in the practice of law. Law firms that have challenged the Trump administration's orders have garnered a significant degree of success. Last month, a federal judge blocked the administration's order targeting WilmerHale, stating that the order's punitive measures such as revoking security clearances and building access, violated constitutional protections and undermined the independence of the judiciary and legal profession. Similar rulings issued earlier offered similar protections to other law firms such as Jenner & Block and Perkins Coie. The Trump administration's exercise of executive power to limit powerful law firms from opposing certain governmental actions has far-reaching implications for a modern democracy. The legal profession has historically been tasked to check the government through a challenge of its exercise of power. Threats to the legal profession stymie this checking mechanism and commensurately, potentially erodes the salience of the rule of law, which has been a foundational staple of American democracy. There has always been periodic tension between the legal profession and the government's agendas. The profession's pursuit of justice in the face of governmental opposition constitutes an age-old phenomenon of historic proportions. Over 500 years ago, the dramatic confrontation between King Henry VIII England and his Lord Chancellor, Thomas More, has remained an iconic illustration of the tension between governmental authority and the legal profession. Henry VIII's clash with More also demonstrates the perennial dilemma lawyers face as they pursue justice under the law. In summary, King Henry VIII, desperate to sire a son, sought to divorce his first wife, Catherine of Aragon, and marry Anne Boleyn. To accomplish this objective, he issued two proclamations - one that declared him head of the Church of England and the other establishing that any issue from his union with Anne Boleyn would succeed him on the throne. Henry VIII sought his Lord Thomas More's endorsement of these proclamations. More, who strongly believed in the rule of law and a lawyer's duty to strive for universal justice, would not endorse the King's proclamations. He found both to be violative of moral and positive law. Despite pressure from Henry VIII, and pleas from his family to capitulate, More remained steadfast. While he never spoke against the King's proclamations, he adamantly refused endorsement. That refusal cost him dearly, resulting in his execution by decapitation. The dramatic confrontation between Henry VIII and Thomas More, which illustrated the tension between a lawyer's duty to uphold the rule of law while satisfying the objectives of a client, has contemporary relevance. Today, law firms that have been subjected to the demands of the executive branch are now experiencing their dilemmas of conscience. Achievement of the balance between adherence to legal rules and appeasement of authority can be precarious. Most lawyers attempt to maintain a lucrative practice while adhering to their duty to uphold the rule of law. Layered within this struggle lies society's need for judicial impartiality, justice, and sustenance of a democracy, which are all dependent upon adherence to the rule of law. Also at stake in the balancing of rule adherence and professional appeasement is the public's perception of the judicial system and the legal profession in general. Lawyers have had a longstanding duty to uphold the rule of law and foster societal confidence in the profession. This ethical duty ensures public faith in the legal system and, in turn, sustains a functional democracy. Without public confidence in these fundamental principles, democracy will, at best, wither. Fulfillment of a lawyer's ethical obligations requires firm commitment and, at times, bravery. As Sir Thomas More's narrative demonstrates, adherence to the principles of justice can be perilous. That said, abandonment of this important duty leads, at best, to cognitive dissonance for lawyers and, at worst, a crippled democracy. Lessons from Henry VIII and Thomas More's narrative have instructive value for those on either side of the political divide. For those seeking greater support for the executive branch, the conflict between the King and More tacitly suggests the value of engagement and negotiation rather than governance by fiat. Consensus through negotiation constitutes a tactic that heightens governmental efficiency and minimizes costly litigation. It also optimizes the possibility of achieving mutually acceptable settlements that might garner more universal acceptance. 'A Man For All Seasons,' which is a famous play written by Robert Bolt, captures the essence of Thomas More's dilemma of conscience. One scene from the play focuses on a conversation between More and his daughter, Elizabeth Roper, who argued valiantly for More to save his life by capitulating to Henry VIII. Emphasizing that moral integrity required steadfast adherence to the rule of law, More tells Elizabeth that, 'If we lived in a state where virtue was profitable, common sense would make us good, and greed would make us saintly … but since in fact we see that avarice, anger, envy, pride, sloth, lust and stupidity, commonly profit far beyond humility, chastity, fortitude, justice, and thought, … why then perhaps we must stand fast a little — even at the risk of being heroes.' Legal practitioners today will hopefully be inspired by More's example. By holding fast, lawyers would not only preserve the rule of law, but also ensure democracy's survival.

Trump appointee vows to focus DOJ's largest division on DEI, denaturalization
Trump appointee vows to focus DOJ's largest division on DEI, denaturalization

Fox News

time11-06-2025

  • Politics
  • Fox News

Trump appointee vows to focus DOJ's largest division on DEI, denaturalization

FIRST ON FOX: The newly confirmed head of the Department of Justice's Civil Division sent out a memo hours after being sworn in on Wednesday in which he directed staff to focus on a slate of conservative priorities, including rooting out antisemitism and diversity, equity and inclusion. Assistant Attorney General Brett Shumate's internal memo, first obtained by Fox News Digital, also directed attorneys in the DOJ's largest division to prioritize investigations and legal action that involved tightening restrictions on transgender medical care and denaturalizing citizens who "illegally procured" naturalization. In addition to initiating lawsuits, the Civil Division is primarily tasked with defending the government in court in non-criminal matters, which includes the hundreds of lawsuits President Donald Trump and his administration have been hit with as Trump carries out executive actions that test the limits of presidential authority. Civil Division attorneys from the Federal Programs Bench have been fighting court battles on behalf of Trump related to his sweeping tariffs, birthright citizenship, activities by the Department of Government Efficiency, and, most recently, his use of the National Guard in California. Shumate was confirmed by the Senate on Monday along party lines. The Civil Division head was seen during the confirmation as a Trump loyalist who previously worked as a partner at Jones Day, a Washington-based firm that has represented Trump during his campaigns. Shumate was a top official in the Civil Division for two years during the first Trump administration. Shumate's memo suggests he kicked off his first day in office by setting a tone for his wealth of attorneys that aligned with President Donald Trump's and Attorney General Pam Bondi's agendas. In an unusual move, the division will coordinate with the Civil Rights Division on its anti-DEI efforts. Trump has frequently described DEI as discriminatory. "Consistent with these directives, the Civil Division will use all available resources to pursue affirmative litigation combatting unlawful discriminatory practices in the private sector," Shumate wrote. This is a developing story. Check back for details.

US Supreme Court reverses decision to rule on class action question
US Supreme Court reverses decision to rule on class action question

Reuters

time05-06-2025

  • Business
  • Reuters

US Supreme Court reverses decision to rule on class action question

June 5 (Reuters) - The U.S. Supreme Court on Thursday sidestepped resolving a major issue across class action litigation, turning aside an appeal that could have made it harder for plaintiffs lawyers to bring together groups of people to sue companies and others for alleged wrongdoing. The justices' order, opens new tab said the court had 'improvidently' agreed in January to hear an appeal by diagnostics testmaker Labcorp, which was challenging a lower court's order that allowed thousands of consumers to sue the company in a class action for damages. Labcorp's petition focused on a key issue in class actions that implicates billions of dollars: whether judges can certify a class action for damages that includes some members who have not been harmed. After hearing arguments in the case in April, the Supreme Court took the unsual step on Thursday of dismissing the appeal. The order did not discuss the merits of the appeal or the court's reasoning. Justice Brett Kavanaugh wrote separately that the court should have ruled for Labcorp. Labcorp and a lawyer for the company at law firm Jones Day did not immediately respond to requests for comment. The plaintiffs' lead attorney, Deepak Gupta, in a statement said Labcorp's appeal was procedurally flawed, and called the Supreme Court's order a win for his clients. 'Class actions are a critical tool for ensuring access to the courts,' Gupta said. 'Today's dismissal leaves the law of class actions intact, allowing people to band together to hold powerful corporations accountable for their misconduct.' The case had attracted many friend-of-the-court briefs at the Supreme Court, as business advocates, legal scholars, antitrust litigators and others tried to influence the justices. Visually impaired consumers sued Labcorp in 2020 over their inability to use the company's self-service check-in kiosks where a person enters information prior to an appointment for a blood draw or urine screening. Labcorp said many blind patients either were not aware of the kiosks or had no interest in using them. A federal district court judge in 2022 certified a nationwide class that made claims against Labcorp under the Americans with Disabilities Act and other laws. In its petition, opens new tab, Labcorp said U.S. appeals courts are divided over whether to certify a class action that includes people who have not been injured. The possibility that the justices might dismiss the case without ruling on the merits came up at the Supreme Court's argument in April. Gupta, responding to a question, told the justices that Labcorp could still ask a lower judge to decertify the class action. 'They're not without rights,' Gupta told the court. The case is Laboratory Corp of America v Davis, U.S. Supreme Court, No. 24-304. For petitioner: Noel Francisco of Jones Day For respondent: Deepak Gupta of Gupta Wessler Read more: Class action administrators, banks accused of kickback scheme in new lawsuits Marriott wins US appeals order striking down data breach class action This Supreme Court case could upend class actions Lawsuit accuses American Arbitration Association of monopolizing consumer market

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