DOL abandons appraiser-as-fiduciary rule

Published on 04 March 2015 by in News

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In late January, the Department of Labor (DOL) announced that it will abandon the “appraiser-as-fiduciary” rule from its planned reproposal of a broader fiduciary rule. As reported in the January 2015 issue of ASA’s Capital Action publication, the ASA has learned that when the DOL reproposes a broad set of rules affecting fiduciaries and prohibited transactions, the proposal will not include a proposal to classify appraisers as fiduciaries in connection with valuations of employee stock ownership plans (ESOPs).

This is great news for business appraisers.  If appraisers had been subjected to the duties of fiduciaries when performing an ESOP valuation, they would have been placed in a position of owing a special duty of care to a party to the ESOP transaction, which runs counter to the objective, unbiased role appraisers are supposed to play in any valuation assignment.  In addition, the additional risks and cost of fiduciary insurance coverage that would have been imposed on appraisers would likely have made ESOP valuations cost prohibitive for all but the largest valuation firms.

 

John G. Mack, ASA, MCBA, ABAR – Nationwide Valuations – (303) 496.0643 (direct) (303) 586.4554 (fax)
john@nationwidevaluations.comwww.nationwidevaluations.com

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Estate of Franklin Z. Adell v. Commissioner, T.C. Memo 2014-155, Filed August 4, 2014.

The Facts:

Mr. Franklin Z. Adell (“the decedent”) died on August 13, 2006. At the time of his death, among other assets, the decedent owned a 100% interest in STN.com (“STN”), a cable uplinking company created to provide services to one customer, a non-profit religious network called The Word Network (“The Word”). Mr. Kevin R. Adell, son of the decedent (“Mr. Adell”), and the decedent, created The Word in 1999 as a 24-hour station to broadcast urban religious ministries and gospel music. Mr. Adell called upon his personal relationships with religious leaders and churches to gain support and programming for The Word. The decedent was the president and a director of The Word, and Mr. Adell was the treasurer, secretary and a director. In addition, Mr. Adell served as the president of STN, however, he did not have an employment agreement or non-compete agreement with STN.

The Word entered into a services & facilities agreement with STN in 2000 which stated The Word would pay STN a monthly programming fee of “the lesser of actual cost or ninety-five percent of net programming revenue received by The Word in a one month period”. STN received at least 95% of revenue from The Word each month up to and after the decedent’s death, which was STNs primary source of income as The Word was their sole customer. STN’s expenses included rent payment to the decedent’s wholly-owned property holding company, compensation to its officers and employees and personal benefits to both the decedent and Mr. Adell, including paying for luxury cars, real estate and furnishings purchases, and personal litigation expenses, among other things. [...]

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