Gifting and Estate Tax Valuations
Revenue Ruling 59-60 is the controlling authority on gift and estate tax valuations. Promulgated in 1959, this revenue ruling lists eight factors requiring careful analysis for the valuation of closely held stocks for gift and estate tax purposes. These factors include the nature of the business and the history since inception, the economic outlook in general and for the specific industry, the book value of the stock and the financial condition of the business, earnings capacity of the company, dividend paying ability of the company, consideration of goodwill or other intangible assets, sale of the stock and size of the block of stock to be valued, and the market price of stocks of corporations engaged in the same or similar line of business, having their stocks actively traded in a free and open market.
Chapter 14 (Sections 2701 through 2714) of the Internal Revenue Code requires the valuation practitioner to have a working knowledge of state statutes governing the liquidation and transfer of closely held company or partnership being valued as these statutes vary widely.
In determining the fair market value of an asset for tax purposes, it is increasingly important that the valuation expert read and understand all of the relevant IRS promulgations and Tax Court cases regarding valuation. In fact, the case Haggerman v. Commissioner, selected the IRS's expert's valuation opinion in its entirety, in part, because that expert had researched and reviewed IRS proclamations and Tax Court cases as a part of the valuation process.
LMF Valuation and Consulting will work for you and with your accountant to develop a valuation that meets the legal requirements for gifting purposes and/or estate tax applications.
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