When formulary apportionment produces results that inadequately represent the extent of a taxpayer’s business activity in a particular state, both taxpayers and state taxing authorities have the right to petition for alternative apportionment methods. However, the circumstances and thresholds that require the use of alternative apportionment are ambiguous, because there is little concrete guidance on using alternative apportionment methods or how to reliably determine “fair” apportionment.

To address this, Principals Dr. Ara Stepanyan and Evan Cohen and Senior Associate Dr. Margaret McKeehan have coauthored an article examining the circumstances for alternative apportionment methods, and an approach to reliably measure the value of in-state business activity. The full Tax Notes State article, “An Empirical Economic Framework for State Corporate Tax Apportionment,” is available below.

The post Ambiguity Surrounding the Determination of Fair State Tax Apportionment Is Addressed by Brattle Consultants in New <i>Tax Notes State</i> Article appeared first on Brattle.

Citigroup is the successor in interest to Glendale Federal Savings & Loan (Glendale). Glendale merged with the insolvent First Federal Savings and Loan of Broward County (Broward) in 1981. This merger was one of many “assisted” transactions that took place during the Savings & Loan crisis, in which a more robust thrift acquired a weaker one with the support of the Federal Savings and Loan Insurance Corporation (FSLIC). FSLIC’s assistance included providing Glendale with a guarantee that Glendale could record a supervisory goodwill asset on its books equal to the difference between the value of the acquired tangible assets and acquired tangible liabilities, and amortize this goodwill over 40 years for regulatory purposes. This “Rap Right” guarantee was a promise that the regulatory accounting treatment applied at the time of the acquisition would not be changed.

However, with the passage of the Financial Institutions, Reform, Recovery and Enforcement Act (FIRREA) in 1989, Congress eliminated this favorable treatment of supervisory goodwill. The subsequent write down of supervisory goodwill forced Glendale to withdraw from the Florida market. Claiming that the RAP Right was now worthless, Glendale (and later Citigroup) sought to record a $798 million loss and a corresponding tax deduction, a claim which the government contested on the basis that only part of the supervisory goodwill related to the RAP Right.

Latham & Watkins retained Brattle on behalf of Citigroup to value the assets acquired by Glendale. David Plastino valued the pre-existing intangible assets of Broward, and reconciled those values with valuations performed by other experts of the various elements of FSLIC assistance, including the RAP Right, to arrive at an opinion regarding the overall composition of the supervisory goodwill asset. A trial was held in the spring of 2022, and Judge Bruggink released his decision in June 2023. Relying on the valuations of several experts, including Mr. Plastino, the court was able to determine a value for the RAP Right. Judge Bruggink also ruled that Citigroup is entitled to a substantial tax deduction for the loss of the value of the RAP Right, as well as a refund for taxes paid on a damages award Glendale had won in prior civil litigation against the US government.

The post Brattle Valuation Helps Secure Favorable Outcome for Citigroup in Complex Tax Refund Case appeared first on Brattle.

“With his extensive expertise in securities trading, valuation, and causation, Drew is a robust addition to our firm’s Securities team,” said Brattle Interim President & Principal David J. Hutchings. “His testifying experience and ability to help parties understand risk in complex portfolios involving options will be a major asset to Brattle’s clients.”

With more than 15 years of litigation consulting experience at top consultancies, Dr. Roper has served as a testifying expert in several high-profile commercial litigation matters, including as a class action certification expert. He has consulted on matters involving options trading, claims relating to risk management, fixed and variable rate annuities, and more.

Dr. Roper’s consulting experience is supported by a strong background in academia. He has held research and teaching positions focused on corporate finance at the Stanford Law School, the University of Wisconsin-Madison, and Duke University’s Sanford School of Public Policy. His work has been published in several leading economic and financial journals.

“I look forward to continuing to build the Brattle brand in securities litigation,” said Dr. Roper. “With the deep bench of expertise already in place and opportunities to invest going forward, Brattle should be on the top of the short list for clients looking for experienced securities experts that use innovative approaches.”

Before joining Brattle, Dr. Roper founded his own litigation consulting firm Catalyst Economic Consulting, and gained prior experience as an Executive Vice President and a Vice President, respectively, at two global economics consultancies.

To learn more about Dr. Roper, please see his full bio.

The post Financial Economist Andrew Roper Joins The Brattle Group as Principal appeared first on Brattle.

The winners of the 2022 Brattle Group Prize in Corporate Finance are:

First Prize, $25,000: Andreas Fuster, Paul Goldsmith-Pinkham, Tarun Ramadorai, and Ansgar Walther
Predictably Unequal? The Effects of Machine Learning on Credit Markets
The Journal of Finance, February 2022

Distinguished Paper, $10,000: Asaf Bernstein
Negative Home Equity and Household Labor Supply
The Journal of Finance, December 2021

Distinguished Paper, $10,000: Isaac Hacamo and Kristoph Kleiner
Forced Entrepreneurs
The Journal of Finance, February 2022

The Brattle Group has funded this annual award for more than 20 years. These prizes are presented at the AFA’s annual meeting, and this year’s awards were announced at the AFA’s Annual Meeting 2023, which took place January 6–8 in New Orleans, LA. All papers published in issues of The Journal of Finance from the first five issues of the given year, and December of the previous year, are eligible. We congratulate the winners on their achievements!

View a complete list of past winners

More about the AFA

The post American Finance Association Announces 2022 Recipients of The Brattle Group Prizes in Corporate Finance appeared first on Brattle.

“We know firsthand from past collaborations that Ara is a welcome addition to the Tax Controversy & Transfer Pricing practice and our firm more broadly,” said Brattle Interim President & Principal David J. Hutchings. “His creativeness, responsiveness, and depth of analytical rigor when answering difficult questions in transfer pricing and economics – which are becoming more commonplace – will be invaluable to Brattle’s team and our clients.”

Among his transfer pricing experience, Dr. Stepanyan has extensively worked on value chain design, valuation of intangible assets and financial instruments, documentation and audit support, M&A due diligence and transfer pricing risk assessment, advance pricing agreement negotiations, and disputes. He has served as a consulting expert for some of the US’s largest tax and transfer pricing matters, assisting attorneys in all phases of litigation. In addition, Dr. Stepanyan leads teams of economists and data scientists in developing performance improvement solutions rooted in causal inference.

“I am very excited to be joining Brattle’s world-class team during this pivotal time – as tax authorities in the US and around the world are strengthening their transfer pricing enforcement capabilities and investing in data analytics tools for monitoring and risk assessment, the number of transfer pricing audits is expected to continue to increase alongside litigation,” shared Dr. Stepanyan. “I look forward to collaborating with my new colleagues and providing consulting and litigation support services to clients.”

Dr. Stepanyan has taught economics at Rice University, and has written on transfer pricing, valuation, and other topics for leading industry publications such as Tax Notes Federal, Tax Notes International, and the Journal of the Association of Insolvency & Restructuring Advisors.

Prior to joining Brattle, Dr. Stepanyan was a Principal at a consulting firm focused on economics, strategy, and technology. He previously worked at a global management consultancy and Big 4 accounting firms.

To learn more about Dr. Stepanyan, please see his full bio.

The post Dr. Ara Stepanyan Joins The Brattle Group’s Tax Controversy & Transfer Pricing Practice appeared first on Brattle.

Real options are investment opportunities that will be exploited in the future if they become sufficiently valuable. The capital expenditure that real-option exercise requires is implicit leverage; it acts like debt because it increases financial risk and because not undertaking investments can be costly.

Real-option leverage does not appear on corporate balance sheets, so observed capital structures of firms that hold real options may provide a distorted view of the debt capacity of the underlying assets.  This implies that estimates of the cost of capital based on observed capital structures of such firms will be biased. And it suggests that capital-structure theories will be difficult to test when real options and hidden leverage are important.

The full article, “Real Options and Hidden Leverage,” can be found below.

The post Hidden Leverage in Real Options: Brattle Consultants Uncover in the <i>Journal of Applied Corporate Finance</i> appeared first on Brattle.

“Toby is a welcome addition to Brattle’s Electricity group and our firm more broadly,” said Brattle President & Principal David L. Sunding. “With his regulatory expertise and breadth of experience working with electric and natural gas utilities, he will add depth to our firm and be a vital asset to clients.”

Mr. Bishop’s expertise extends to strategic, regulatory, financial, and transactional matters for electric and natural gas utilities, natural gas pipelines and storage developers, and independent energy project developers. He has worked on federal and state rate case proceedings, valuations for ad valorem tax disputes, utility municipalization efforts, contractual disputes, purchase and sales transactions, regulatory strategy and policy matters, and competitive and market power concerns.

He has provided expert testimony and other filings in over 50 administrative and civil proceedings in the US and Canada, including before the Federal Energy Regulatory Commission (FERC), the Canada Energy Regulator (CER), and state and provincial regulatory agencies.

“I am thrilled to join the respected team of economists at The Brattle Group, especially during this pivotal time for the energy industry,” Mr. Bishop said. “I look forward to helping the firm continue its success and collaborating on regulatory economics and finance matters.”

Previously, Mr. Bishop was a Senior Vice President at an economic consultancy, and he also held positions at two management consultancies.

To learn more about Mr. Bishop, please see his full bio.

The post Toby Bishop, Expert on Regulatory Economics and Litigation Matters in the Energy Industry, Joins The Brattle Group as Principal appeared first on Brattle.

“These talented individuals provide in-depth expertise to a vast array of clients on matters related to financial services, energy, tax, and more,” shared Brattle President & Principal David Sunding. “In addition, they have made exemplary contributions to mentoring and developing their colleagues, and truly demonstrate the exceptional leadership pipeline we are fortunate to have at the firm.”

Our new Principals:

• Hollie Mason | Practice Leader: Broker-Dealers & Financial Services | Chicago
  An attorney with more than 15 years of experience in the financial industry, Ms. Mason provides expert testimony and consulting services concerning securities litigation and enforcement matters. She has deep knowledge of Financial Industry Regulatory Authority (FINRA) and Securities & Exchange Commission (SEC) rules.
• David McKnight | New York
  Mr. McKnight has over 20 years of experience providing expert testimony and consulting services in matters pertaining to mass torts, securities, finance, valuation, and bankruptcy. In mass tort matters, he has worked with liability forecasts, insurance coverage, and discounted cash flows.
• Albert Metz | New York
  Dr. Metz is a securities and finance expert with deep experience in credit analysis, financial modeling, asset pricing, market efficiency, and event studies. He has consulted on asset pricing, antitrust, mergers and acquisitions, market manipulation, collusion, fixed income securities, and various debt derivatives.
• Christine Polek | Boston
  Ms. Polek serves as a consulting and testifying expert in complex litigation requiring the application of economic, financial, and statistical analysis to legal and regulatory issues – with a focus on valuation, tax controversy, and labor and employment.
• Akarsh Sheilendranath | Boston
  Mr. Sheilendranath is an energy economist with a unique blend of expertise in wholesale electricity markets, electric transmission, and regulatory corporate finance. He specializes in transmission policy, utility investment strategy and planning, large-scale renewable integration, and cost-benefit assessments.
• Anul Thapa | Boston
  Mr. Thapa has over 12 years of experience applying economic and finance principles in complex oil and gas-related litigation, arbitration, and regulatory proceedings. His experience in commercial disputes includes damages estimation, valuation, and pricing related to energy assets and contracts.
• Mike Tolleth | New York
  Mr. Tolleth specializes in the economic analysis of energy markets, with expertise in financial modeling and valuation of energy assets, contracts, and businesses. He supports clients in litigation and arbitration matters and provides expert testimony related to cost of service, rate design, cost of capital, regulatory policy, long-run marginal cost pricing, and market power.

The post Seven Experts Promoted to Principal at The Brattle Group appeared first on Brattle.

First Prize, $25,000: Peter M. DeMarzo and Zhiguo He
Leverage Dynamics without Commitment
The Journal of Finance, December 2020

Distinguished Paper, $10,000: Itamar Drechsler, Alexi Savov, and Philipp Schnabl
Banking on Deposits: Maturity Transformation without Interest Rate Risk
The Journal of Finance, February 2021

Distinguished Paper, $10,000: Pat Akey and Ian Appel
The Limits of Limited Liability: Evidence from Industrial Pollution
The Journal of Finance, February 2021

The Brattle Group has funded this yearly award for more than 20 years. These prizes are presented at the AFA’s annual meeting, and this year’s awards were announced at the virtual 2022 ASSA/American Finance Association’s (AFA) Annual Meeting on January 7–9. All papers published in the prior year’s issues of The Journal of Finance are eligible. We congratulate the winners on their achievement!

View a Complete List of Past Winners

More about the AFA

The post American Finance Association Announces 2021 Recipients of The Brattle Group Prize appeared first on Brattle.