Michael Toscano is a Business Valuation and Litigation Support Manager at Duffy Kruspodin, LLP, with over five years of consulting experience assisting clients with both their business valuation and forensic accounting needs. Michael specializes in business valuation engagements for the purposes of estate and gift fillings, business shareholder & partner disputes, marital dissolution, employee stock ownership plans (ESOPs), mergers & acquisitions, and management planning. Additionally, Michael specializes in preparing various forensic accounting reports in connection with litigation support.

Russ Alan Prince: Tell me about the type of clients you work with.

Michael Toscano: We specialize in both business valuation and forensic accounting engagements. So, our clients tend to have a wide range of backgrounds. Generally, we assist business owners in determining their company’s value for tax reporting purposes or litigation support purposes. Business owners often need to understand their company’s value specifically for succession and estate planning. In that unique area, we assist clients with maximizing the use of their tax exemptions and exclusions through business valuation discounts and similar tax planning tools.

Prince: Do you have an expertise or focus area for your practice?

Toscano: While I have expertise in several areas of consulting, my passion is for business valuation in connection with succession and estate planning. Oftentimes, business owners will overlook the importance of succession and estate planning, which can result in undesirable tax consequences for themselves and their loved ones. 

The professionals here at Duffy Kruspodin work in tandem with our clients to develop effective succession and estate plans that are tailored to each client’s unique circumstances. While many professionals can execute a succession or estate plan, our team understands that a successful plan is one that specifically addresses each client’s personal needs as no two clients are the same nor are their circumstances. 

Prince: What do you do for clients in that situation?

Toscano: Duffy Kruspodin is a full-service public accounting firm. So, clients that are in need of a detailed succession and estate plan receive input from numerous departments beyond just my own, which include the Family Office and Estate & Gift Tax Divisions. A successful plan leverages the expertise of multiple professionals working in unison to maximize the benefits received by our clients. 

Prince: Tell me about a service you provide in a succession and estate plan like this.

Toscano: Sure, often succession and estate plans involve executing gifts to the client’s family members and loved ones. Estate and gift returns filed with the IRS require a formal business valuation report to be included if a business interest is gifted. These gifts are generally for partial business interests which enables professionals like me to utilize business valuation discounts. 

Business valuation discounts generate immediate tax savings and represent value reductions to a business interest that lacks control over the entity and lacks a market to be sold in. Per IRS guidance, the value conclusion utilized for estate and gifting purposes should represent what the business interest would sell for between hypothetical independent market participants in an open and unrestricted market. 

The question I like to pose to clients is, “What are you willing to pay for a 50% interest in the tire shop down the street assuming a million-dollar value for the entire company?” I’ve never heard half a million dollars as their response. Business owners know and understand that without control or the ability to sell the partial interest, no rational buyer would transact at half a million dollars. Valuation discounts can have a tremendous impact on preserving family wealth and facilitating the transfer of family-owned businesses from one generation to the next, which is generally the underlying goal of all succession and estate plans.

Prince: How did the COVID-19 Pandemic affect your industry?

Toscano: The pandemic resulted in significant gifting activity. A common misconception in succession and estate planning is that planning should occur just prior to retirement or when asset values are high. However, to maximize tax exemptions and exclusions the most advantageous time to execute a gift is when asset values are suppressed. This was the case during the pandemic. 

Some of the most effective gifts I’ve seen executed in my career occurred during March 2020 and involved holding companies containing marketable securities. IRS guidance concerning holding companies is generally the same as for operating companies. This means what would a partial interest in a family limited liability partnership transact between hypothetical independent market participants in an open and unrestricted market. The important concept to walk away with is, the actual identity of the gifter and giftee is not assessed when determining the value conclusion of a business interest when gifted. 

Prince: How did your expertise allow you to navigate the COVID-19 pandemic period?

Toscano: Good question, business valuation during the pandemic was no easy feat and at times resulted in a significant amount of additional analysis. This was the case for any company significantly affected by the pandemic. I’ll never forget working on valuations for companies under government restrictions that were literally not allowed to provide goods and services to their customers. As you can imagine, business owners that executed gifts during this period were quite effective and resulted in significant tax savings for themselves, their families, and loved ones. 

RUSS ALAN PRINCE is the Executive Director of Private Wealth magazine (pw-mag.com) and Chief Content Officer for High-Net-Worth Genius (hnwgenius.com). He consults with family offices, the wealthy, fast-tracking entrepreneurs, and select professionals.