Taxing Definitions

The Value of Sand

Thanks for sharing!

Sand and Bucket

Tax court cases frequently inform on interesting subjects. For example, did you know one cubic yard of sand generally weighs 1-1/2 tons? That’s according to footnote four in 140 T.C. No. 15 (Chapman Glen Limited). In this case, the value of the sand, and other assets, are in dispute—which leads to another interesting subject: valuing assets.

Fair market value is a term often discussed in tax law, and generally defined as the price a willing buyer in possession of all relevant facts would pay a willing seller. Three approaches are typically used to determine the fair market value of property: (1) the market approach, (2) the income approach, and (3) the asset-based approach.

The market approach requires a comparison of the property with similar property sold in an arm’s-length transaction in the same timeframe. The property is valued by taking into account the sale prices of the similar property and the differences between that property and the property being valued.

The income approach values property by computing the present value of the estimated future cash flow of the property. The estimated cash flow equals the sum of the present value of the available cash flow and the present value of the property’s value at the end of its useful life.

The asset-based approach values property by determining the cost to reproduce it less depreciation or amortization.

Once you’ve found the value, it may be reduced by a “bulk discount”, which reflects the fact that the sale of a large block of property in the same general location over a reasonable period of time usually depresses the price for that property.

And one last bit of interesting trivia: Rip rap is the rock retaining wall that goes along the beach to dissipate the energy from the ocean to prevent cliff erosion.

***

Other posts you might enjoy

Definition — The tipping point Image source: Sam Truong Dan on Unsplash   To tax those tips or not? Tips are not defined in the tax code or regulations so the determination of whether a payment is a tip depends on four factors. The absence of any one factor creates doubt as to whether the payments are tips. In Offi...
Definition — Identifying the employer Photo by Nick Hillier on Unsplash   What's your number? If you're required to file certain business tax returns, the answer is an employer identification number, or EIN. The IRS assigns employer identification numbers when you file an application (generally Form SS-4). In fiscal year 201...
Definition — Virtually taxable Image source: wpclipart.com   If you want to know the value of money, both real and virtual, you can try to borrow some. Or, in the case of digital currency, you could ask the Internal Revenue Service. The buying and selling of digital assets, including coins and tokens offered and so...
Definitions — Order in the court Image source: openclipart.org   If it please the court … A few weeks ago, the national taxpayer advocate released the 2017 Annual Report to Congress, as required by law. (Section 7803(c)(2)(B)(ii)) Part of the first volume of the report discusses the ten most litigated issues as measu...
Tagged , ,