How do taxes “affect” S corporation valuations?

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Abstract: For many years, “tax-affecting” the earnings of S corporations and other pass-through entities was a widely accepted valuation practice. But that changed in 1999, when the Tax Court ruled in Gross v. Commissioner that tax-affecting was inappropriate when valuing a minority interest in an S corporation. However, this brief article discusses recent cases which show that, though courts won’t accept full tax-affecting to reflect remote risks, tax-affecting can still be appropriate in the right circumstances.