Tax-affecting S corp earnings – Courts’ varied approaches create confusion

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Abstract: Whether a valuator should reduce earnings by an assumed corporate tax rate — even though S corporations don’t pay tax at the corporate level — has created confusion for years. This article describes a recent bankruptcy case that reveals that the confusion still hasn’t been resolved. The article provides a rationale for tax-affecting and explains that courts have taken a variety of approaches to the issue. Bank of America, N.A. v. Veluchamy (In re Veluchamy), 2014 Bankr. LEXIS 5106 (Dec. 18, 2014). Delaware Open MRI Radiology Associates v. Kessler, 898 A.2d 290 (Del. Ct. Ch., 2006).