Valuation

General

The value of each item of property incredible in a decedent’s gross estate is the fair market value of the property at the time of the decedent’s death, unless the personal representative elects alternate valuation under section 2032, special use valuation under section 2032A, or the family business exclusion under section 2033A of the Internal Revenue Code.

For estate tax purposes, Regulation section 20.2031-(l)(b) defines fair market value to be the “price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.” The value of gift property is determined similarly. Regulation section 25.2512-1 provides that the value of gift property is the “price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell, and both having reasonable knowledge of relevant facts.”

 

Guideline for Valuing Businesses
Revenue Ruling 59-60 is widely regarded as providing the basic criteria relevant for the competent valuation of a closely held business. In estimating fair market value, an appraiser should consider the following guidelines, set forth in Revenue Ruling 59-60, where applicable:

  1. The entity’s nature and history;
  2. The economic outlook of the specific industry and the general economy;
  3. The entity’s book value and financial condition;
  4. The entity’s earning capacity;
  5. The entity’s dividend paying capacity;
  6. Whether the enterprise has goodwill and other intangible value;
  7. Prior sales of the equity and the size of the block of shares to be valued; and
  8. The sales price of companies engaged in the same line of business.