Cecil v. Commissioner Provides New Insights on Tax-AffectingCecil v. Commissioner Provides New Insights on Tax-Affecting

Ever since Gross v. Commissioner,¹ the Tax Court has struggled with the valuation of pass-through entities, such as S corporations (S corps). The question is: Should the earnings of an S corp be tax-affected by imposing an assumed corporate tax rate (based on the taxes of similar C corporations (C corps), for example) to pre-tax earnings and then capitalizing those earnings in some way?

Recently, in Jones v. Comm’r,² after a 20-year history of denying tax-affecting, one court agreed that it was allowable. However, just two years later, in Jackson v. Comm’r,³ another court didn’t find tax-affecting appropriate.

Now, here comes Cecil v. Comm’r,⁴ decided in early March, in which the court is again allowing tax-affecting in a valuation case. C...