Doeren Mayhew Celebrates 75 Years

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					The Competitive Edge
A Doeren Mayhew Quarterly Newsletter

Winter 2007

Articles Inside This Issue:
Doeren Mayhew Celebrates 75 Years
The Well-Adjusted Valuation
DM Director Joins ATHENAPowerLink Board of Governors
2006 Tax Relief and Health Care Act
Doeren Mayhew Employees Walk in Memory of Leslie

Doeren Mayhew Celebrates 75 Years
A Message From Mark Crawford, Managing Director

Celebrating the Past
This year marks the 75th anniversary of Doeren Mayhew. Originally founded in 1932, Doeren Mayhew
has grown from its humble beginnings in Grosse Pointe Park to become one the nation‟s leading certified
public accounting and consulting firms. Even Karl Doeren and Bruce Mayhew might have hesitated to
predict that their life‟s work — and names — would become nationally and internationally recognized as
trusted business advisors to thousands of individuals and businesses throughout North America and
around the world.

Since relocating to Troy in 1979, Doeren Mayhew has achieved tremendous success, placing us within
the 50 largest firms in the U.S. — always with a strong focus on serving our clients with integrity and

Our approach to maintaining a single office and keeping our talent consolidated in one efficient location
has created the 4th largest single-office firm in the nation.

Our profession has recognized the quality of the firm, and for the eleventh consecutive year Inside Public
Accounting has awarded Doeren Mayhew with its “Best of the Best” rating, which ranks the nation‟s top
25 firms based on fiscal management and performance. No other firm in Michigan has ever achieved this
honor and no other firm in the nation has been on the list longer than Doeren Mayhew.

Additionally, as an independent founding member of the international association Moore Stephens
International, we have access to resources in virtually every major city in the U.S. and in 95 countries
around the globe.

Focused on the Future
While we fondly remember the past, it is with great enthusiasm and anticipation that we look to the

Our Community. In commemoration of this important milestone, Doeren Mayhew has set in place several
ongoing programs with the focus on giving back to the community, which has been very supportive of us
over the years.
Included in these programs is a philanthropy program to encourage all of our directors and staff to
become involved in community charities, and a gifting program to several Michigan universities that
helped shape the directors and professionals who are the backbone of this firm.

Our Employees. In appreciation of our employees, the directors of Doeren Mayhew have implemented a
new program to recognize and incentify our long-term employees at every five-year anniversary.

Our Clients. Over the course of our 75-year history, Doeren Mayhew has proudly served individuals,
manufacturers, schools, contractors, distributors, financial institutions, and just about every industry in
between. We sincerely value everyone of our clients and realize your importance to the success of our
firm. Your patronage and referrals over the years are greatly appreciated.

Looking to the future, we are committed to strengthening and growing the services and capabilities that
you have come to know and expect from Doeren Mayhew — always with the goal of delivering the
widest range of business tools to keep you ahead of the curve.

Thank you to all who have made these years more rewarding than any of us could have ever imagined.
Please join with us in celebrating the last 75 years and in looking forward to many more years of
continued growth and success.

The Well-Adjusted Valuation
6 Adjustments to Value That You Need to Know About

Two important adjustments an appraiser considers in valuing a closely held business interest are
adjustments for lack of marketability and for minority interest. But these are just the tip of the iceberg.
When determining value, valuators must consider a host of other adjustments.

1) Key Person/Thin Management
A key person or thin management adjustment is appropriate in the valuation of a closely held company
when an owner or employee who would be difficult to replace is responsible for a significant or material
portion of the business, such as sales or profits. This key person may be a revenue generator, possess
technical knowledge, or have close relationships with suppliers, customers, or banks.

According to Revenue Ruling 59-60, “The loss of the manager of a so-called „one-man‟ business may
have a depressing effect upon the value of the stock of such business, particularly if there is a lack of
trained personnel capable of succeeding to the management of the enterprise.” But many valuation
professionals deal with the risk of the management structure in the rate of return rather than as a separate

2) Restrictive Agreements
A review of any buy-sell or restrictive agreement within a closely held corporation typically reveals
various stockholder rights, including income and dividend preferences, liquidation preferences, voting
rights, and limitations on the sale or transfer of the stock. The more severe the restrictions, the higher the
adjustment. But the valuator must determine whether IRC Section 2703 is applicable, because this would
affect the extent to which a restrictive agreement can be considered.

3) Investment Company
Investment companies may sell, at least in part, on the basis of their assets (typically real estate and
securities). An analysis of publicly traded investment companies reveals that minority interests in
investment companies typically sell at an adjustment from their respective prorata share of the company‟s
net assets restated at fair market value. The application of this adjustment would account for the
shareholders‟ indirect ownership of these assets. Minority owners cannot force the sale, liquidation, or
merger of these assets.

An investment company adjustment is sometimes referred to as a lack of control adjustment and is akin to
a minority adjustment. But in some court cases, investment company adjustments have been allowed for
majority, but less than control, situations.

4) Blockage
Blockage adjustments are applicable to publicly traded securities. The basic theory behind a blockage
adjustment is that a large block of publicly traded stock cannot usually be sold as readily or quickly as a
few shares of stock. This reflects the laws of supply and demand. When only a limited or stable market
for the publicly traded securities exists, offering a large block of those securities can have a depressing
impact on their value.

Tax courts have considered several relevant factors, including:

       Size of the block of stock in relation to the total number of shares that are publicly held
       Average daily trading volume in the periods preceding the valuation date
       Price level per share
       Dollar value of the entire block
       Whether the block of stock constitutes control of the entity
       General market trends in terms of price and volume
       Industry trends
In addition, the issuing company‟s earnings and dividend-paying capacity must be considered.

5) Market Absorption
The theory behind market absorption adjustments is the same as for blockage except that valuators
usually apply them to real estate investments. For example, a large block of similar real estate holdings
within a specific geographical area cannot usually be marketed and sold as easily as one property. As with
blockage adjustments for publicly traded securities, when a limited or stable market for a certain type of
property exists, offering a large block of properties of this type all at once depresses the market value and
lowers the price that can be obtained for each property. The market cannot absorb all the properties at the
same time.

The following factors are often considered when determining a market absorption adjustment:

       The amount of square footage of the block of real estate compared with the total square footage
        of similar real estate in a certain geographical area
       The total dollar value of the real estate in the block
       General market trends as of the sale date
       Real estate trends within the geographical area
       The type of real estate
The three most well-known cases concerning market absorption adjustments are Estate of Grootemaat
(15% adjustment), Estate of Folks (20% adjustment) and Carr (30% adjustment).

6) Nonhomogeneous Assets
This adjustment is sometimes applicable when an unusually diverse collection of assets or businesses
exists. The company may have a small management team that may have difficulty managing the diversity.

In the Estate of Albert L. Dougherty, the court allowed a 10% adjustment to reflect “incremental
management costs due to the non-homogeneous nature of the assets of the A.L. Dougherty Co. Inc.” It is
important to note that the valuation in Dougherty was of a 100% interest. The court also allowed a 25%
adjustment for lack of marketability.

To Adjust or Not To Adjust?
These are just a few of the many considerations that go into determining whether a particular adjustment
to value is appropriate. Some experts might still consider it simple. Generally, avoid statements that
assume a given knowledge level. It‟s not as simple as it might seem. Please call our office at
248.244.3000 if you have a question related to valuation adjustments. We would be glad to help.

Common Adjustments Up Close
Following is a brief look at the two most common adjustments and how they can affect a valuation:

1) Lack of Marketability
Many investors prefer investments that have access to a liquid market and may be readily sold. Shares
without such marketability characteristics normally don‟t sell as well as more liquid shares. They
typically sell for less than prices of comparable publicly traded shares. The most important studies
valuators use as proxies to determine adjustments for lack of marketability are:

           Comparisons of closely held transactions before the same company‟s initial public offering,
           Sales of restricted stocks as compared to the same company‟s publicly traded stock

2) Minority Interest
A minority interest adjustment recognizes that control can be an important benefit of ownership,
particularly in a closely held business. When the investor has the right to control the company‟s course of
action, the investment has less perceived risk. Thus, a minority interest in a closely held company usually
commands a lower price than a controlling interest within the same company. Valuators often determine
these adjustments by studying control premiums paid for companies in acquisitions. The adjusted inverse
of a control premium is a minority interest adjustment.

DM Director Joins ATHENAPowerLink Board of Governors
Lawrence A. Simon, CPA and Director, has joined the Board of Governors of the ATHENAPowerLink
program. ATHENA International was founded in 1982 to encourage leadership opportunities for women.

This mentoring program connects selected women business owners with a skilled advisory panel. The
advisory panel, which is made up of lawyers, bankers, accountants, insurance agents, and business
advisors, provides free business consultation for one year. The panel consults to help the business owner
achieve networking, capital, operational, and strategic goals.
Mr. Simon elected to volunteer his time and expertise to ATHENA as a way to give back to the
community and to assist in the early development of women-owned businesses.

For additional information about ATHENA International please visit their Web site at

2006 Tax Relief and Health Care Act
Tax planning just got a little more simple and a lot more complicated. You may have heard that Congress
has passed another tax cut package. Just before adjourning, Congress approved the $45 billion Tax Relief
and Health Care Act of 2006. Like so many recent tax laws, the new law is huge. It includes tax breaks
for individuals and a myriad of different businesses.

The new law simplifies tax planning because it renews a batch of temporary tax incentives, commonly
known as tax extenders. These are temporary tax breaks that Congress has been extending every year or
so instead of making them permanent. It‟s budget gimmickry to make the tax cuts seem less expensive
over one or two years than if they were permanent.

The extenders passed Congress at the last minute. The House voted to approve the tax bill on December 8
and the Senate on December 9. After that, Congress adjourned.

The temporary nature of the extenders caused a lot of problems this year. Even though Congress extended
them, it did so after the IRS printed most of the 2006 tax forms. The IRS is expected to release a special
publication about the extenders and our tax professionals are ready to answer all your questions about the
extenders and the new law at any time.

Tax Incentives for Individuals
For individuals, the state and local sales tax deduction is one of the most important extensions. Two years
ago, Congress changed the tax laws to permit you to deduct either state or local income taxes or state and
local general sales taxes as an itemized deduction. That was good news for people in states without a state
income tax. However, the deduction was temporary and expired at the end of 2005. The new law extends
it through 2007.

Other extenders for individuals are more targeted. If you paid tuition for post-secondary education, you
may be eligible for the extended higher education tuition deduction. Teachers and other education
workers can deduct up to $250 for some out-of-pocket classroom expenses. First-time homeowners in the
District of Columbia get a tax break. All of these tax cuts are extended through 2007.

Congress also created some new tax breaks for individuals. You may be able to deduct premiums for
mortgage insurance on your home. If you had incentive stock options and pay AMT, you could be eligible
for a refundable credit. The rules for both of these incentives are very complicated. We can help you
decipher them.

The news about energy tax breaks for homeowners is mixed. Congress did not extend the tax credit for
installing energy-efficient windows, doors, and other common items. Instead, it extended the credit for
“alternative” energy expenditures. These are more exotic items, such as solar water heaters and fuel cells.
At the last minute, Congress made some important changes to Health Savings Accounts in the new law.
These accounts are similar to IRAs. You can save money for future health care expenses. The new law
facilitates transfers between health flexible spending accounts (FSAs) or health reimbursement accounts
(HRAs) and HSAs. It also allows a one-time rollover of IRA savings into an HSA for qualifying
taxpayers. If you don‟t have an HSA, give our office a call and we‟ll explore the benefits of these
accounts with you. The new law could make them even more valuable for you.

Business Tax Breaks
The bulk of the tax incentives in the new law are targeted to businesses — businesses of every type and
variety. Employers large and small all benefit from some of the provisions.

Many employers have been clamoring for extension of three temporary tax breaks: the research tax credit,
the Welfare-to-Work credit and the Work Opportunity credit. The research credit is designed to
encourage U.S. companies to conduct scientific and technical research at home. The Welfare-to-Work and
Work Opportunity credits reward employers who hire new employees from economically-challenged
groups. These credits have been extended but not made permanent.

Businesses also are eligible for some extended energy tax breaks. Like the energy tax incentive for
individuals, these reward very specific energy improvements. The new law also extends incentives to
boost domestic production of alternative fuels, such as ethanol, and to encourage renewable energy

Businesses also are eligible for a host of other tax breaks. Employers who hire Native Americans may
qualify for a tax break. The new law extends the domestic production activities deduction to U.S.
businesses with manufacturing activities in Puerto Rico. Mining companies get a tax break for investing
in mine safety equipment and mine safety training. Merchant vessels on the Great Lakes qualify for a tax
break. The list goes on and on.

Crackdown on Tax Protesters
Congress has given the IRS enhanced authority to penalize taxpayers who file frivolous returns and other
bogus submissions. These tax protesters claim, for example, that the federal income tax is
unconstitutional or that wages are not taxable. The IRS has heard — and rejected — all of these
arguments for years. Now it can impose a penalty of up to $5,000 on individuals making these false

The new law also permits the IRS to continue to share information with law enforcement agencies to
combat terrorism. Individuals who contact the IRS about tax cheaters may be eligible for higher rewards
under the new law.

Technical Corrections
The new law makes technical corrections to some existing tax laws. These are not substantive changes;
that is, they don‟t create new tax breaks. Rather, they are meant to clarify what Congress intended. The
technical corrections in the new law impact tax shelter regulations and controlled foreign corporations.

Looking Ahead
The Tax Relief and Health Care Act of 2006 was the last tax bill of the 109th Congress. When the new
Congress convenes in January, Democrats and not Republicans will be in charge. New leaders will bring
new priorities. One thing that is certain not to change is lawmakers‟ interest in tax policy. Many
individuals are concerned about the alternative minimum tax. Congress could tackle that issue next year.
Businesses are struggling with health care costs. Some tax-related proposals could be introduced to help
businesses. Our office will keep monitoring developments in Congress as they unfold and keep you
Our tax professionals are ready to assist you. Call Doeren Mayhew today at 248.244.3080 for answers to
your questions regarding the new tax law, or to discuss your specific tax and financial situation. You
could be eligible for some valuable tax incentives.

Doeren Mayhew Employees Walk in Memory of Leslie
Leslie Newill was a tax manager with Doeren Mayhew for 10 years. After a very long battle with cancer,
Leslie passed away in her sleep in April 2006. She is survived by her husband and 4 children.

In memory of Leslie, several Doeren Mayhew employees walked in the Detroit Race for the Cure in June
2006 (Joe Amine, Brooke Campbell, Sharon Hemmen, and Dawn Jasinski) and in the Cancer 3-Day Walk
in August 2006 (Dawn Jasinski and Melissa Traver).

We are very pleased to report that Doeren Mayhew employees, clients, and friends contributed nearly
$6,000, of which the company matched dollar for dollar. Because of everyone‟s generosity, we were able
to raise over $12,000 in Leslie‟s memory.

In a totally unexpected turn of events, the portion of the funds that went toward the Race for the Cure put
us in 2nd place for the highest individual donation awards (of over 30,000 participating in the race).
Doeren Mayhew employee and breast cancer survivor Sharon Hemmen attended the annual “Friends for
the Cure” award ceremony in September without even knowing that she was among the honorees. You
can read the article entitled “Komen Detroit Race for the Cure, Karmanos Cancer Institute Honors Top
Fundraisers” at (located in the “current news” link).

Thank you to all who contributed to this worthwhile cause. This would not be possible without all of you!

This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other
professional advice or opinions on specific facts or matters, and, accordingly, assumes no liability whatsoever in connec tion with its use. Should the
reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contac ted.