The Role of Courts in Asset and Business Valuation

Mark Jackson (Assistant Professor, University of Nevada), Sonja Pippins (Associate Professor, University of Nevada), and Jeffrey Wong (Associated Professor, University of Nevada) recently published their article entitled, Asset and Business Valuation in Estate Tax Cases: The Role of the Courts (Oct. 30, 2011). The abstract available on SSRN is below:

The U.S. court system plays an important role in resolving asset valuation disagreements between taxpayers and the taxing authority. Prior literature supports the notion that in estate tax cases, courts act as compromiser choosing a value somewhere between the estimates arrived at by the taxpayer and the IRS. Some studies argue that the tax courts chose the arithmetic mean between the two estimates. Using models from prior literature and an updated data set, we re-examine the role of the courts in appraising disputed asset value estimates. In addition to testing the concept of courts acting as compromisers, we investigate whether there are certain factors related to the case, the judge, and the economic environment that might influence the judge’s decision. We find evidence that suggests that the number of appraisers used by the taxpayer, the gender of the judge, the type of asset being valued, and the size of the U.S. deficit are related to the decisions of the court.