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Healthcare Industry E-Flash Never Underestimate the Complexity of Healthcare Valuations!On July 11, 2006, the Court of Appeals for the Fifth Circuit overturned the 2002 Tax Court decision of Caracci v. Comm’r, 118 T.C. 379, 2002, U.S. Tax Ct. Lexis 25 (2002), which involved the value of three privately held home-healthcare agencies that converted from exempt to nonexempt tax status. The Commissioner initially issued deficiency notices totaling over $250 million in excise taxes due to the IRS’ assertion that the fair market value of the assets transferred from the exempt entities to the nonexempt entities exceeded the amount of the liabilities and debt assumed resulting in a “net excess benefit” to the taxpayers. The reversal decision has important implications for valuations of healthcare entities and should be considered when choosing a valuation expert. Caracci v. Comm’r, No. 02-60912, U.S. Court of Appeals for the Fifth Circuit, July 11, 2006. A key issue that influenced the Appeals Court to overturn the verdict revolved around the experts’ industry experience (or lack thereof). The Commissioner’s expert had no healthcare industry experience and spent only a minimal amount of time with the companies in question. The taxpayer’s expert, on the other hand, had significant healthcare experience and spent much more time with the companies learning the intricacies of their business. When choosing a valuation expert (particularly for the healthcare industry), it is critically important to engage someone with adequate industry experience. If you would like the full text of the above case or have other healthcare valuation questions, please contact Carol Carden at (865) 558-8118 or e-mail ccarden@valuepointconsulting.net. For more information regarding ValuePoint, please visit our website at www.valuepointconsulting.com. ValuePoint Consulting Group, LLC
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