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Perterson v. Commissioner - 409A Issues and Mary Kay

Posted on July 16, 2014 at 7:55 AM

Very few Mary Kay representatives are able to make a living just selling the products.  This Tax Court case involves one representative that did manage to do well, but who ran into some issues attempting to convert wages into retirement distributions, not subject to self-employment tax. So, why talk about this in a valuation blog?  Because normalization of compensation is part of the valuation analysts job and this case underscores the some of the difficult issues that arise.  See  https://www.ustaxcourt.gov/InOpHistoric/Peterson_Foley.TCM.WPD.pdf.


I can imagine having some interesting discussions with counsel regardingcompensation if I were valuing a Mary Kay business interest. As for the arguments presented, well, if I were acting as an advocate--the attorney role--the arguments made are the ones I would have also made to the US Tax Court.


I recommend reading this 2013 case and waiting a few more weeks until the US Tax Court judges are back from their summer vacation. 

Categories: Business Valuation, Litigation Support: Cases

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