What conclusion was drawn in the Gross case regarding S corporations?

The conclusion drawn in the Gross case regarding S corporations is that the subject S corporation should not be tax affected. This is significant because it reflects the understanding that S corporations, which are pass-through entities, typically do not pay corporate income tax at the entity level. Instead, the income, deductions, and credits "pass through" to the shareholders, who then report them on their individual tax returns.

In the context of business valuation, tax-affecting an S corporation would mean adjusting the earnings to reflect a hypothetical tax expense, which is not applicable in this scenario according to the court's ruling. The Gross case provides legal precedent indicating that S corporations' valuation should be conducted without assuming a tax burden at the corporate level, which is crucial for valuators to consider in their methodologies.

This understanding reinforces the treatment of S corporations in valuation practices, emphasizing that their earnings should be valued in a manner consistent with their tax structure and the implications of pass-through taxation.