Sobel EAC Valuations
While this discussion is related to S corporations, much of it is equally applicable to other pass-through entities such as Limited Liability Companies.
An S election, where earnings are “passed through” to shareholders, has been traditionally been desirable because it eliminates the double taxation of C corporation profits that are taxed first at the corporate level and a second time when distributed to shareholders as dividends. Before the Tax Cuts and Jobs Act (“TCJA”), this “benefit” was clear, and valuation literature provided several methodologies to calculate such benefit. The provisions of the TCJA, effective January 2018, challenge this traditional assumption.