Learn about opportunities contained within the law to help your divorcing clients and learn how they can use the new tax law most effectively.

1. The CFL Designation - Advanced Financial Training for Attorneys
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2. The AACFL
An educational organization providing training on the
financial aspects of divorce practice to attorneys and
judges nationwide.
The CFL certification for divorce attorneys – Now in
over 10 states!
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3. Lee D. Sanderson, CPA, ABV, CFF, CVA, MST
Managing Partner – Valuation Forensics, LLC - offering business valuations,
forensic accounting, tax analysis and expert testimony nationwide.
lee@valuationforensics.com; 212-400-3923
Co-founder and National Advisory Board Member of the AACFL
Kenneth J. Pia, Jr., CPA, ABV, ASA, MCBA
Partner-in-Charge, Business Valuations – Marcum LLP
Ken.Pia@marcumllp.com; 212-485-5725
Advisory Board Member of the AACFL
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4. THE TAX CUT AND JOBS ACT
Passed by Congress in December
of 2017
Significant Impact on Divorcing
Couples
Purpose of presentation – highlight
changes – opportunities
Important – IRS can still issue
interpretations
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5. WHY CURRENT INTERPRETATIONS WILL
CHANGE
Congress
Passed Law
IRS issues
guidance for
grey areas
Tax Court
Decisions and
IRC
Regulations
Final Tax Law
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6. No tax reform since 1986
Then dormant till September 2017. Passed December 2017.
Most changes will impact 2018 except for alimony provision.
Consider – provisions expire in 2025 for individuals only
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7. TAX RATE CHANGES
Tax Savings in excess of $5,000
Single – Begins at $525,000
HOH – Begins at $700,000. Loss between $300k and 500k
MFJ – Begins at $180,000
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8. EXEMPTIONS AND
TAX DEDUCTIONS
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9. EXEMPTIONS AND TAX DEDUCTIONS
Dependent exemptions - GONE
Impact – exemption x marginal tax rate
Head of Household Status – REMAINS
Impact – Lower tax rates and higher standard deduction
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10. EXEMPTIONS AND TAX DEDUCTIONS
Child Tax Credit - Remains
Impact - more people qualify
Increased to $2,000 per child
$1,400 can be a refundable credit
Phase-out at $200,000 for taxpayers other than MFJ
This is where it matters which party can claim the child as a
dependent.
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11. EXEMPTIONS AND TAX DEDUCTIONS
Mortgage Interest
Impact – Limited to $750,000 of home equity debt
Other – HELOC interest non-deductible unless acquisition debt
State Tax Deduction – LIMITED
Impact – Cap of $10,000 for state taxes, real estate taxes and
excise taxes combined.
Other – 9 out of 10 people expected to take standard
deduction.
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12. EXEMPTIONS AND TAX DEDUCTIONS
With minimal tax savings for most taxpayers other than MFJ, fewer
itemized deductions and no ability to shift income to lower tax
brackets with deductible alimony – biggest concern is how divorced
families will survive with less cash flow.
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13. EXEMPTIONS AND TAX DEDUCTIONS
Significant increase to standard deductions:
$24,000 – Married Filing Jointly
$18,000 – Head of Household
$12,000 - Single
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14. EXEMPTIONS AND TAX DEDUCTIONS
Previous negotiating tool – Alimony equal to itemized deductions
made sense as the payer would get a tax deduction and the
recipient would pay no tax up to the amount of itemized
deductions. The ability to do this will now be greatly reduced.
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15. ALIMONY
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16. ALIMONY
No longer tax deductible for agreements entered into after
December 31, 2018.
For modifications – they will need to specify if new law is to apply.
Incentive to finalize agreements in 2018 – or not – depending on
which side you are on
What about Prenuptial Agreements?
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17. ALIMONY
Eliminates the interplay between child support and alimony
as a negotiating tool.
Would seem to be a windfall for the recipient of alimony.
However, this will be so only if the courts use the same
percentages for alimony and do not take steps to offset this
new law.
What can they do?
Percentage changes – equalization calculations – a focus on
after tax disposable income.
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18. ALIMONY
Calculate the after-tax disposable income under current tax law and alimony
percentages and compare disposable income to the new law to determine the
alimony percentage needed to maximize spendable income to the parties.
Other considerations – Loss of itemized deductions as a tool for absorbing
taxable alimony.
Potential loss of retirement account contribution deduction for recipient as
they are based on taxable income.
No alimony recapture issues.
Will states adopt the federal changes? UNKNOWN
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19. ALIMONY
What will be the goal of the judges?
Keep same disposable income that existed under old law?
Use same alimony percentages without compensating for tax
impact?
Adjust alimony percentages to maximize spendable income of the
parties?
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20. ALIMONY
Proposal To Consider:
Present alimony calculations under both old and new law
Present after-tax disposable income calculations
Calculate for the court the percentage that will generate the
optimal result - maximize spending power of the parties.
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21. IMPACT ON AFTER-TAX INCOME:
WITH ALIM0NY TAX DEDUCTION VS. NO ALIMONY TAX DEDUCTION
(2019+)
Description Recipient Payor Total Recipient Payor Total
Wages - 600,000 600,000 - 600,000 600,000
Alimony 180,000 (180,000) - - - -
Income 180,000 420,000 600,000 - 600,000 600,000
Standard Deduction (12,000) (12,000) (24,000) - (12,000) (12,000)
Taxable Income 168,000 408,000 576,000 - 588,000 588,000
Less Fed Tax (35,449) (118,489) (153,938) - (183,249) (183,249)
Non-Taxable Income 180,000 (180,000) -
After-Tax Income 132,551 289,511 422,062 180,000 224,751 404,751
31% 69% 44% 56%
Results: Lee D. Sanderson, CPA, ABV, CFF, CVA, MST
Higher Total Taxes Paid: 29,311 VALUATION FORENSICS, LLC
Gain for Recipient: 47,449 www.valuationforensics.com
Loss to Payor: (64,760) 212-400-3923
2018 - Single - No Kids 2019 - Single - No Kids
No Alimony Tax Deduction (2019 forward)
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22. 22
Lee D. Sanderson, CPA, ABV, CFF, CVA, MST
VALUATION FORENSICS, LLC
www.valuationforensics.com
212-400-3923
Description Recipient Payor Total Recipient Payor Total
Wages - 1,500,000 1,500,000 - 1,500,000 1,500,000
Alimony 450,000 (450,000) - - - -
Income 450,000 1,050,000 1,500,000 - 1,500,000 1,500,000
Standard Deduction (12,000) (12,000) (24,000) - (12,000) (12,000)
Taxable Income 438,000 1,038,000 1,476,000 - 1,488,000 1,488,000
Less Fed Tax (128,989) (349,749) (478,738) - (516,249) (516,249)
Non-Taxable Income 450,000 (450,000) -
After-Tax Income 309,011 688,251 997,262 450,000 521,751 971,751
31% 69% 46% 54%
Results: Lee D. Sanderson, CPA, ABV, CFF, CVA, MST
Higher Total Taxes Paid: 37,511 VALUATION FORENSICS, LLC
Gain for Recipient: 140,989 www.valuationforensics.com
Loss to Payor: (166,500) 212-400-3923
2018 - Single - No Kids 2019 - Single - No Kids
Impact on After-Tax Income:
With Alimony Tax Deduction (2018 and Prior) vs.
No Alimony Tax Deduction (2019 forward)

23. BUSINESS
VALUATIONS
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24. BUSINESS VALUATIONS
Higher business values resulting from new tax law
Lower tax rates results in higher valuations
Consideration should be given to the entity type. Would changing
entity type result in a different valuation without impacting the
business operations?
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25. TAX CUTS AND JOBS ACT:
EFFECT ON BUSINESS VALUATIONS

26. TCJA – VALUATION IMPLICATIONS OUTLINE
Date of Passage
Tax rate changes
High Level implications – did values just increase?
Income approach implications
§ Cash Flows
§ Cost of capital
Market Approach implications
PTE implications
§ QBID
§ PTE Tax adjustment
Other changes
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27. DATE OF IMPLEMENTATION
U.S. House and Senate passed the Tax Cuts and Jobs Act on December 21,
2017; President Trump signed it on December 22, 2017
Took effect January 1, 2018
When known or knowable?
§ A couple of key dates in the process:
§ November 9, 2016 – Trump elected with promise of tax reform
§ August 30, 2017 – Trump speech pitching tax overhaul package
§ November 9, 2017 – Both Senate and House plans cut corporate rates to
20%
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28. TAX RATE CHANGES SUMMARIZED
Corporate Tax Rates
§ Reduction from 35% Max Corporate Rate
§ Tax Rates: Corporate rate is set at a flat 21% rate for C corporations after 2017
Personal Tax Rates
§ Reduction from 39.6% Max Personal Rate to 37% for 2018-2025
§ Deduction for state and local real property, personal property and income
taxes is limited to $10,000 for 2018 – 2025
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29. IMPLICATIONS
Have values of Corporations just increased by 15% to 19%?
§ This is the implied increase from changing the tax rates in an income
approach
What have public companies done?
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30. PUBLIC COMPANY PRICES
Source: Capital IQ
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31. PUBLIC COMPANY PRICES
Can we look to public companies to find proof of value increases?
§ Maybe, but its difficult to isolate tax effects, and to choose dates to compare
S&P 500 increased 25% from November 9, 2016 (2016 Election) to January 2,
2018
Within this time frame:
§ 10% increase from August 30, 2017 (tax reform speech) to January 2, 2018
§ 4% increase from Nov 9, 2017 (Senate and House agree 20% rate) to January
2, 2018
As of January 16, 2018 S&P rose another 3% from January 2, 2018
Takeaway:
§ Price changes occurred in anticipation of the tax changes and the market is
still rising
§ What does this mean for private companies?
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32. INCOME APPROACH IMPLICATIONS – CASH
FLOWS
Federal corporate tax rate changes to 21%
What will companies do with increased cash flow?
§ Distribute?
§ Invest in capital expenditures and growth?
§ Raise wages? (will this result in growth?)
Requires conversations with management so plans or lack thereof can be captured in
cash flows and/or discount rate
New changes need to be modeled in to cash flow
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33. INCOME APPROACH IMPLICATIONS – COST OF
CAPITAL
Cost of Equity:
§ Is historical data still relevant for ERP when market has not yet reflected current
ERP? Data we typically use is from 1926 to present
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34. COST OF CAPITAL IMPLICATIONS
Cost of Equity: Overall Increases?
§ Investor expectations of greater returns because of cash flow increases
§ The fed is now reducing its holdings in US backed securities and treasury debt; this
will increase cost of capital
§ Business risk – beta risk increases as risk from debt financing increases, true cost
of debt will increase because tax savings will decrease, causes business risk to
increase and beta to increase
§ As of March 11, 2018 Duff & Phelps had not yet seen an increase in the ERP
Cost of Debt: Increases
§ Increased because of lower taxes and deduction limitations
Weighted Average Cost of Capital:
§ Increases
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35. INCOME APPROACH IMPLICATIONS – COST OF
CAPITAL
Cost of Equity:
§ Historical data does not yet reflect changes to required returns
§ Lack of empirical data forces appraiser to use judgement to assess additional risk or
changes to required returns
§ No changes recommended by experts yet
Cost of Debt:
§ Change tax rate applied to debt in model
Weighted Average Cost of Capital:
§ Will company’s reliance on debt, and therefore debt/total capital weighting change now
that debt is more expensive?
§ After-tax cost of debt is higher
§ There are now interest deduction limitations (discussed in detail later in this
presentation)
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36. SUMMARY OF IMPACT ON VALUES
Competing forces
§ Cost of Capital increase which would lower value
§ Cash flow increase which will raise value
At the moment it appears the cash flow force is winning; ie values have increased
We will have to see how this continues to play out
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37. C CORP EXAMPLE
Subject Company has revenue of $32 million and EBITDA of $10 million
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Old Tax Law New Tax Law
DCF:
• Cash Flows:
• Taxes calculated using
tax brackets (40%
blended rate)
• 16.7% Cost of Equity
• 2.78% Cost of Debt
• 11.4% WACC
DCF:
• Cash Flows:
• Flat 26.1% blended
state and fed rate
• No Change to Cost of Equity
• 3.56% Cost of Debt
• 11.5% WACC
DCF Value: $60 million DCF Value: $71 million
19% increase in value

38. THE MYTH OF THE RISE OF C CORPORATIONS
The historic concern with use of C corporations involves a second shareholder-level tax on
distributing funds from the corporation as a dividend or as part of the capital gain
produced on the sale of shares.
Qualified dividends and long-term capital gains are subject to preferential rates (either 15% or
20%, depending upon taxable income) and potentially subject to the 3.8% net investment
income tax
In all scenarios, the pass-through taxation rate produces a more efficient tax result than the
double tax result. For businesses which cannot utilize the new pass-through deduction, the
results are close for those in the 35% and 37% individual tax brackets. The results are
brought even closer when the deductibility of state taxes for the C corporations are
considered.
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Stated Individual Rate Pass-Through Rate Corporate Double Tax
(without 20%
reduction)
(with 20%
reduction)
(applies 20% rate to
24% bracket and higher)
10% 8.0% 28.90%
12% 9.6% 30.48%
22% 17.6% 32.85%
24% 19.2% 35.85%
32% 25.6% 35.85%
35% 28.0% 39.80%
37% 29.6% 39.80%

39. DEPRECIATION
Change in depreciation:
§ Most capital expenditures made after September 27, 2017 are now fully expensed
through 2023 – this means companies will get the full tax break on purchases and
may mean higher cash flows in models
§ Graduated decline in expensing through 2026
§ Depreciation run off of old assets will need to be modeled into analysis
§ Old depreciation will be a non cash expense that will reduce taxes but WILL need
to be added back to cash
§ Purchases that do not qualify for full expensing:
§ Land
§ Buildings
§ Real property improvements – but these are included in the newly raised $1
million Section 179 deduction
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40. DEPRECIATION
New tax law will create an irregular pattern of depreciation
Impact will be on timing of present value
Will require additional analysis, particularly for capital intensive companies
We will need to discuss cap ex projections with management and get estimates of
lives of assets
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41. MARKET APPROACH IMPLICATIONS
Guideline Company Method
§ Data is as of Valuation Date, so market changes should be reflected in multiples
Transaction Methods
§ Most data will be prior to tax reforms
§ Appraiser judgement to adjust multiples
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42. PASS THROUGH ENTITIES
What is the benefit to being a pass through entity now that corporate rates are 21%?
Historically we have modeled cash flows of a pass through entity by taxing cash flows
at personal income tax rates (historically, the total effective pass through tax rate
has been about 35%), then modified the c corp rate of return (or applied a pass
through premium) to adjust the indicated value for the benefit of single layer
taxation
This premium for avoidance of the second layer of dividend tax has been around 10%
- 12% of value
This premium is unchanged under the new tax laws
The increase in value of pass through entities will result solely due to reduced top
personal rate from 39.6% to 37%, and QBID deduction (if eligible)
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43. QUALIFIED BUSINESS INCOME DEDUCTION
(QBID)
Creates a 20% deduction of qualified business income through 2025.
Except for: any trade or business involving the performance of services in the fields of:
§ Health
§ Accounting
§ Performing arts
§ Athletics
§ Brokerage services
§ Law
§ Actuarial science
§ Consulting
§ Financial services
§ or any trade or business where the principal asset of such trade or business is the
reputation or skill of 1 or more of its employees
§ (Note that engineering and architects are not in list of excluded services)
43

44. QUALIFIED BUSINESS INCOME DEDUCTION
(QBID)
For businesses that do qualify, the application and limitations are very complicated
The deduction is the sum of:
1. The lesser of:
§ 20% of the taxpayer's "qualified business income" or
§ The greater of:
§ 50% of the W-2 wages with respect to the business, or
§ 25% of the W-2 wages with respect to the business plus 2.5% of the unadjusted
basis of all qualified property.
2. Plus
§ 20% of qualified REIT dividends
§ qualified publicly traded partnership income.
Qualified business income includes REIT dividends
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45. QUALIFIED BUSINESS INCOME DEDUCTION
(QBID)
However, the 20% deduction applies to specified service businesses (which would not
otherwise qualify) where taxable income is not greater than $315,000 for joint
filers and $157,500 for other filers (subject to a phase-out).
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46. QUALIFIED BUSINESS INCOME DEDUCTION
(QBID)
Suggested method of QBID in income approach:
1. Subject normal individual taxes when calculating cash flow for cap cash flow
or DCF as usual
2. Calculate present value of QBID tax benefit (if eligible)
3. Add present value of QBID tax benefit to resulting value of operations
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47. QUALIFIED BUSINESS INCOME DEDUCTION
(QBID)
QBI (of the business) does not include:
§ Short or long term capital gains or losses
§ Dividend income
§ Interest income
But reasonable compensation for business owners is taken as an expense in
calculating QBI
Capital basis is equal to initial tax cost of the assets, not impacted by depreciation,
amortization or depletion. For most companies it will be the original cost of the
property.
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48. QUALIFIED BUSINESS INCOME DEDUCTION
(QBID)
48

49. S CORP EXAMPLE – HIGHEST MARGINAL
RATES/NO QBID
Subject Company has debt-free EBT of $1.0 million
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50. S CORP EXAMPLE – HIGHEST MARGINAL
RATES/QBID
Subject Company has debt-free EBT of $1.0 million
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51. TCJA OTHER CHANGES
Changes to know, details in following slides:
§ Interest Deduction Limitations
§ NOL and Loss Deduction Limits
§ R&D Costs and Credit
§ Carried Interest
§ Estate, Gift and GST
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52. INTEREST DEDUCTION LIMITATIONS
Interest Deduction Limitation
§ Every business, regardless of form, would be subject to disallowance of a deduction for
net interest expense in excess of 30% of the business' adjusted taxable income. Net
interest expense is determined at the tax filer level (e.g., the partnership versus a
partner).
§ Interest not deducted can be carried over indefinitely
§ Small Business Exception – Business with average gross receipts of less than $25
million
§ “Adjusted Taxable Income” – for years beginning before 1/1/2022, does not consider
deductions for depreciation, amortization, or depletion.
§ Electing Real Property Trade or Business can be excluded from this rule (but note impact
on depreciation – i.e., must use ADS depreciation)
§ Electing Farming Business (which would be required to use ADS recovery system) for
property with 10 years or more recovery period.
§ The Interest Deduction Limitation will not apply to certain regulated public utilities and
certain electric cooperatives.
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53. NOL AND LOSS DEDUCTION LIMITS
Net Operating Loss Deductions
§ Carryback generally eliminated (but a 2 yr carryback is permitted for farming businesses.)
§ Limited to 80% taxable income for NOLs created in 2018 and later.
§ Property and casualty insurance companies are allowed a 2 year carryback and 20 year
carryforward period to use 100% of the NOLs.
§ Unlimited carryovers
Limitation on Losses of Non-Corporate Taxpayers (for 2018 tax years through 2025)
§ Losses allowed limited to a threshold ($500,000 for joint filers; $250,000 for others) for
non-corporate taxpayers.
§ The excess (unused) losses are carried forward and treated as part of the NOL
carryforward to a subsequent year.
§ The limitation applies at the partner or S shareholder level
§ Applies after application of the passive loss rules.
§ For this period, current excess farm loss rules do not apply.
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54. NOL AND LOSS DEDUCTION LIMITS EXAMPLE
IRS has not issued guidance yet on how to handle pre and post 2017 NOLs,
particularly when both could be used in the same year (would this be limited to
80% of income or 80% of income after use of pre-2017 NOL) – here we’ve limited
to 80% of income in 2020
54

55. TCJA – R&D COSTS AND CREDIT
Amortization of R&D costs:
§ For tax years beginning after 12/31/2021 (on a cut-off basis) R&D expenses
(including software development) must be amortized over 5 years (15 years if
research is outside of US)
§ On retirement, abandonment or disposition of property, balance of basis continues
to be amortized over balance of life.
§ Land acquisition and improvement costs, mine (including oil and gas) exploration
costs are excluded from this rule.
Research & Development credit retained
55

56. CARRIED INTEREST
After 2017, long-term capital gain treatment for a carried interest requires a holding
period of 3 years (despite a section 83 election).
An interest held for less than 3 years would be treated as short-term capital gain (not
as earnings).
Certain interests held by corporations would be exempt
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57. ESTATE, GIFT AND GST
Estate & Gift Tax Exemption:
§ For 2018 through 2025, the $5,000,000 Basic Exclusion Amount (as adjusted for
inflation – which exempted $5.45 million in 2017) is doubled to $10 million (as
adjusted for inflation after 2011.
§ Basic Exclusion Amount is expected to be approximately $11.2 million in 2018
($22.4 million per married couple)
§ Regulations are to be issued to account for computation where to account for the
differences in the basic exclusion amount at time of death and at date of gift.
Estate Date of Death Basis Rule – is retained
Generation Skipping Tax Exemption is increased in accord with the estate and gift tax
exemption.
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58. DISCLAIMER
This presentation has been prepared for informational purposes only from sources
believed accurate and reliable as of the date of preparation. It is intended to inform
the reader about the subject matter addressed. This is not to be used or interpreted
as tax or professional advice.
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