Recently Completed Assignments

Innovation & Information Consultants, Inc.’s work spans numerous industries and employs an assortment of analytical tools. We are pleased to share with you news about some of our most recent work.

IIC, Inc. Analyzes New Cost Sharing Regulations

IIC Inc. has analyzed the IRS’s temporary regulations relating to cost sharing arrangements (§ 1.482-7T). Effective January 5, 2009, these temporary regulations build upon the proposed regulations from 2005 and contain a number of methodological, terminological and administrative changes from the previous cost sharing regulations which have been in place since 1995. The new regulations introduce the term Platform Contribution Transaction (PCT) formerly considered as a buy-in payment and broaden the definition of intangibles which must be included when valuing contributions to a cost sharing arrangement.

The investor model is presented as a new concept providing guidance on the selection of a best method for valuing the intangibles. The regulations describe five specific valuation methods including two new methods, the acquisition price method and the market capitalization method. The regulations also provide for the use of an unspecified method if it can be shown to be the most reliable method in achieving an arm’s length result. These new regulations present a number of issues both for taxpayers and examiners. Such issues include the application of the investor model and income method for valuing PCTs, issues relating to goodwill and going concern value, particularly as they relate to the new valuation methods, applicability of CUTs to relatively unique but unproven intangibles and the rules relating to periodic adjustments among others.

IIC, Inc. has developed a brief presentation providing further analysis of the new temporary cost sharing regulations.

Estimating Damages from Loss of Business

IIC, Inc. recently estimated the damages resulting from a loss of business stemming from an alleged breach of contract between two firms in the equipment leasing industry. The alleged breach of contract was between an equipment leasing company and a company that served as one of its sources of funding. The damage expert for the leasing company calculated a total present value of lost profits, as a result of the termination, of approximately $1.7million based on the assumption that there were few alternative sources of funding available for the type of business that was lost, and that it would take five years to replace the business associated with this particular funder.

IIC Inc.’s analysis found that not only were there a number of other competing funding companies that provided funding for these leases , but that the majority of business lost by the lessor was most likely due to the effect of the recession on the equipment leasing industry, and not the loss of this particular funding source. In addition, IIC, Inc. demonstrated that the other expert had erroneously included in his damages estimate various equipment leases that had been funded by other funding sources that had exited the business in 2008 due to the recession. IIC, Inc. was able to show that inclusion of revenues and profits from these other funders led to a gross exaggeration of the damages claim. Based on our in-depth analysis IIC, Inc. estimated that any lost business would have been replaced within a six month time period.

The case went to mediation and eventually settled for approximately what IIC, Inc. estimated in damages.

Coal to Liquids (Alternative Fuel)

IIC, Inc. recently completed an analysis of the impact of oil price volatility on the financial viability of investment in coal to liquids technology. IIC, Inc. collected information about coal to liquids plant investments and normalized certain assumptions in the financial models so that they could be evaluated on a comparative basis. This information was used to develop a range of crude oil prices for which a coal to liquids investment would yield the required rate of return. We then evaluated the likelihood that crude oil prices would fall below the breakeven oil price that would render coal to liquids investments uneconomic. We examined forecasts of future oil prices, historical oil price volatility, factors that had caused increased price volatility, and whether these factors were likely to persist in the future. Our analysis showed that oil prices are likely to remain volatile in the future, and therefore we evaluated the viability of coal to liquids investments under several crude oil price scenarios. We used this scenario analysis to determine the attractiveness of coal to liquids investments and the risk that oil price volatility poses to its financial feasibility.

Testimony on Just and Reasonable Rates for Oil Pipelines

IIC, Inc. recently provided expert testimony regarding just and reasonable rates for a major refined products pipeline system in California. Peter K. Ashton, cofounder and principal of IIC, Inc., provided testimony on the cost of service and achieved return earned by the pipeline owner, demonstrating that the rates being charged were not just and reasonable and furthermore, that the pipeline’s request for rate increases could not be justified. Mr. Ashton also commented on the pipeline’s request for light-handed regulation. Using accepted principles of economic analysis, he showed that there were few if any competing alternatives to the use of this pipeline system and alternatives such as trucking and marine movements did not constrain the pipeline’s rates, and therefore, the pipeline’s request should be denied. In an interim decision, the ALJ agreed that the pipeline’s rates should be based on a cost of service analysis, finding that the pipeline possessed significant market power.

Trademark Valuation

IIC, Inc. recently completed a major assignment involving the valuation of a Fortune 500 company's trademarks and trade name. We developed an excess earnings model to value the trademarks based on comparable transactions and projections of the company's future cash flows. Based on the valuation, we also developed a royalty for the use of the trademarks.

Oil Pipeline Rate Regulation

IIC, Inc. recently assisted one of its clients settle several outstanding claims relating to rates charged on various interstate petroleum pipelines. IIC, Inc. developed comprehensive cost of service model indicating that the rates charged by the pipeline company were unjust and unreasonable and assisted its client, a shipper on the pipelines, to reach a settlement regarding appropriate rates. IIC, Inc. developed a sensitivity analysis indicating the impact of various cost elements on the rate and a probability analysis related to the likelihood of success at trial.

Role of Speculation on Oil Prices

IIC, Inc. has recently completed a comprehensive analysis of the reasons that led to the rapid increase and consequent decline in crude oil and refined product prices last year. We found that the devaluation of the dollar and the role of speculators have the greatest impact on the rise in crude oil prices, and these same factor also contributed to the decline as did the recession. Fundamental supply and demand factors did not play a role in the 380 percent increase in crude prices in 2008, and indeed we find that these factors should have led to a price decline, not a price increase. The impact of speculation on gasoline prices likely cost consumers $27 billion last year. Read more

Analysis of the New §1.482 Services Regulations

The Internal Revenue Service revised service regulations that provide new transfer pricing methods for controlled service transactions and include a revised cost safe harbor called the Services Cost Method (SCM). This brief presentation provides a helpful overview to the regulations for tax planners and examiners.
To download PDF version of a Powerpoint document, click here.

Federal Minimum Wage Increase

The federal minimum wage increased in July 2008 to $6.55, an increase of 70 cents from the previous standard of $5.85. This was the second of three increases which will take place over a three-year period. The initial July 2007 change, which raised the minimum wage from $5.15 to $5.85, was the first increase in almost 10 years, dating back to September 1997. The next increase will be enforced beginning in July 2009, raising the federal minimum wage to $7.25. [Click here for historical minimum wage statistics] Amidst the various changes in the federal minimum wage standards, IIC has embarked upon a research study on behalf of the Small Business Administration which aims to define the characteristics of low wage workers. Our research is investigating the industries and types of firms where low-wage workers are employed, and looking at whether increases in the minimum wage requirement and changes in health care coverage have had a disproportional impact on small business owners who employ these workers.

Massachusetts School Building Authority Enrollment Projection Model

IIC assisted the Massachusetts School Building Authority (MSBA) in the development of a computer-based enrollment projection model available for use by all of the school districts in the Commonwealth of Massachusetts. Based on various inputs, the model will predict enrollment for the next ten years allowing each respective school district to make informed, critical decisions relating to the construction of school buildings.


What’s New Recently Completed Assignments Press Releases In the News You are surrounded by simple, obvious solutions that can dramatically increase your income, power, influence and success. The problem is, you just don’t see them. Jay Abraham		Recently Completed Assignments Innovation & Information Consultants, Inc.’s work spans numerous industries and employs an assortment of analytical tools. We are pleased to share with you news about some of our most recent work. IIC, Inc. Analyzes New Cost Sharing Regulations IIC Inc. has analyzed the IRS’s temporary regulations relating to cost sharing arrangements (§ 1.482-7T). Effective January 5, 2009, these temporary regulations build upon the proposed regulations from 2005 and contain a number of methodological, terminological and administrative changes from the previous cost sharing regulations which have been in place since 1995. The new regulations introduce the term Platform Contribution Transaction (PCT) formerly considered as a buy-in payment and broaden the definition of intangibles which must be included when valuing contributions to a cost sharing arrangement. The investor model is presented as a new concept providing guidance on the selection of a best method for valuing the intangibles. The regulations describe five specific valuation methods including two new methods, the acquisition price method and the market capitalization method. The regulations also provide for the use of an unspecified method if it can be shown to be the most reliable method in achieving an arm’s length result. These new regulations present a number of issues both for taxpayers and examiners. Such issues include the application of the investor model and income method for valuing PCTs, issues relating to goodwill and going concern value, particularly as they relate to the new valuation methods, applicability of CUTs to relatively unique but unproven intangibles and the rules relating to periodic adjustments among others. IIC, Inc. has developed a brief presentation providing further analysis of the new temporary cost sharing regulations. Estimating Damages from Loss of Business IIC, Inc. recently estimated the damages resulting from a loss of business stemming from an alleged breach of contract between two firms in the equipment leasing industry. The alleged breach of contract was between an equipment leasing company and a company that served as one of its sources of funding. The damage expert for the leasing company calculated a total present value of lost profits, as a result of the termination, of approximately $1.7million based on the assumption that there were few alternative sources of funding available for the type of business that was lost, and that it would take five years to replace the business associated with this particular funder. IIC Inc.’s analysis found that not only were there a number of other competing funding companies that provided funding for these leases , but that the majority of business lost by the lessor was most likely due to the effect of the recession on the equipment leasing industry, and not the loss of this particular funding source. In addition, IIC, Inc. demonstrated that the other expert had erroneously included in his damages estimate various equipment leases that had been funded by other funding sources that had exited the business in 2008 due to the recession. IIC, Inc. was able to show that inclusion of revenues and profits from these other funders led to a gross exaggeration of the damages claim. Based on our in-depth analysis IIC, Inc. estimated that any lost business would have been replaced within a six month time period. The case went to mediation and eventually settled for approximately what IIC, Inc. estimated in damages. Coal to Liquids (Alternative Fuel) IIC, Inc. recently completed an analysis of the impact of oil price volatility on the financial viability of investment in coal to liquids technology. IIC, Inc. collected information about coal to liquids plant investments and normalized certain assumptions in the financial models so that they could be evaluated on a comparative basis. This information was used to develop a range of crude oil prices for which a coal to liquids investment would yield the required rate of return. We then evaluated the likelihood that crude oil prices would fall below the breakeven oil price that would render coal to liquids investments uneconomic. We examined forecasts of future oil prices, historical oil price volatility, factors that had caused increased price volatility, and whether these factors were likely to persist in the future. Our analysis showed that oil prices are likely to remain volatile in the future, and therefore we evaluated the viability of coal to liquids investments under several crude oil price scenarios. We used this scenario analysis to determine the attractiveness of coal to liquids investments and the risk that oil price volatility poses to its financial feasibility. Testimony on Just and Reasonable Rates for Oil Pipelines IIC, Inc. recently provided expert testimony regarding just and reasonable rates for a major refined products pipeline system in California. Peter K. Ashton, cofounder and principal of IIC, Inc., provided testimony on the cost of service and achieved return earned by the pipeline owner, demonstrating that the rates being charged were not just and reasonable and furthermore, that the pipeline’s request for rate increases could not be justified. Mr. Ashton also commented on the pipeline’s request for light-handed regulation. Using accepted principles of economic analysis, he showed that there were few if any competing alternatives to the use of this pipeline system and alternatives such as trucking and marine movements did not constrain the pipeline’s rates, and therefore, the pipeline’s request should be denied. In an interim decision, the ALJ agreed that the pipeline’s rates should be based on a cost of service analysis, finding that the pipeline possessed significant market power. Trademark Valuation IIC, Inc. recently completed a major assignment involving the valuation of a Fortune 500 company's trademarks and trade name. We developed an excess earnings model to value the trademarks based on comparable transactions and projections of the company's future cash flows. Based on the valuation, we also developed a royalty for the use of the trademarks. Oil Pipeline Rate Regulation IIC, Inc. recently assisted one of its clients settle several outstanding claims relating to rates charged on various interstate petroleum pipelines. IIC, Inc. developed comprehensive cost of service model indicating that the rates charged by the pipeline company were unjust and unreasonable and assisted its client, a shipper on the pipelines, to reach a settlement regarding appropriate rates. IIC, Inc. developed a sensitivity analysis indicating the impact of various cost elements on the rate and a probability analysis related to the likelihood of success at trial. Role of Speculation on Oil Prices IIC, Inc. has recently completed a comprehensive analysis of the reasons that led to the rapid increase and consequent decline in crude oil and refined product prices last year. We found that the devaluation of the dollar and the role of speculators have the greatest impact on the rise in crude oil prices, and these same factor also contributed to the decline as did the recession. Fundamental supply and demand factors did not play a role in the 380 percent increase in crude prices in 2008, and indeed we find that these factors should have led to a price decline, not a price increase. The impact of speculation on gasoline prices likely cost consumers $27 billion last year. Read more Analysis of the New §1.482 Services Regulations The Internal Revenue Service revised service regulations that provide new transfer pricing methods for controlled service transactions and include a revised cost safe harbor called the Services Cost Method (SCM). This brief presentation provides a helpful overview to the regulations for tax planners and examiners. To download PDF version of a Powerpoint document, click here. Federal Minimum Wage Increase The federal minimum wage increased in July 2008 to $6.55, an increase of 70 cents from the previous standard of $5.85. This was the second of three increases which will take place over a three-year period. The initial July 2007 change, which raised the minimum wage from $5.15 to $5.85, was the first increase in almost 10 years, dating back to September 1997. The next increase will be enforced beginning in July 2009, raising the federal minimum wage to $7.25. [Click here for historical minimum wage statistics] Amidst the various changes in the federal minimum wage standards, IIC has embarked upon a research study on behalf of the Small Business Administration which aims to define the characteristics of low wage workers. Our research is investigating the industries and types of firms where low-wage workers are employed, and looking at whether increases in the minimum wage requirement and changes in health care coverage have had a disproportional impact on small business owners who employ these workers. Massachusetts School Building Authority Enrollment Projection Model IIC assisted the Massachusetts School Building Authority (MSBA) in the development of a computer-based enrollment projection model available for use by all of the school districts in the Commonwealth of Massachusetts. Based on various inputs, the model will predict enrollment for the next ten years allowing each respective school district to make informed, critical decisions relating to the construction of school buildings.