Business Valuations for Estate Planning & Gift Taxes

Business valuations for estate and gift taxes are governed by IRS rules, caselaw, technical business appraisal theory and conventional practices. IRS related business valuations is a demanding area of business appraisal practice subject to IRS audits and challenges.

Fair Market Value is generally the standard of value required for IRS related work. It is hypothetical in nature where discounts often apply and is reliant upon known facts or those that could be reasonably known as of the date of valuation. The “date of valuation” or the effective date of the appraisal is the date of which the value is established, and it is only applicable as of that date. For gift taxes, it is the date the ownership interest was transferred. For estate taxes, the effective date is the date of death.

There are two premises of value: 1) Going Concern and 2) Liquidation. Which premise is employed depends on the circumstances and conditions surrounding the business at the time of the effective date.

Under one or the other premise, a consideration of all three of the conventional approaches to value will lead to the emphasis of one indicated value or the reconciliation of multiple indications of value resulting in a final “Opinion of Value”.

A business valuation for IRS estate and gift taxes are governed by IRS Revenue Ruling 59-60. This ruling which has set the theoretical basis for business valuation for some 60+ years, provides general guidelines for business valuation development in terms of what factors are to be considered and analyzed to value a business ownership interest. For a copy of IRS Revenue Ruling 59-60 follow this link.

Pro Business Valuations is an certified business and equipment appraiser experienced in estate and gift tax related valuations.