An estate tax valuation sets the IRS fair market value of a closely held business interest as of the date of death. That number is what the estate reports. If it is too high, the tax is too high. If it is too low, the IRS can challenge it. This article is about that engagement — a business valuation for estate tax on a private company — not gift planning during life and not a general “when do I need a valuation” overview.
Corporate Valuations Inc. prepares these appraisals as part of our gift and estate tax valuation practice. Principals Blake J. Runckel, ASA, CFA, and Cary M. Carruthers have done this work since 1983. Pacific Northwest based, nationwide.
What a closely held estate tax appraisal actually answers
Public stock has a closing price. A family company, professional practice, or other closely held interest does not. The estate still has to assign a value to that interest as of a legally specified date — usually the date of death, or the alternate valuation date six months later when that election applies.
Fair market value, for IRS purposes, is the price at which the property would change hands between a willing buyer and a willing seller, neither under compulsion and both having reasonable knowledge of relevant facts. The appraiser’s job is to support that price for the specific interest that passed — a controlling block is not the same as a minority LLC unit — with a written report the estate can stand behind.
Revenue Ruling 59-60 is the framework, not a formula
For closely held stock, the IRS looks to the factors in Revenue Ruling 59-60: history of the business, economic and industry outlook, book value and financial condition, earning capacity, dividend-paying capacity, goodwill and other intangibles, recent sales of the stock, and prices of comparable companies. A defensible estate tax valuation addresses those factors in the report. It does not plug a rule of thumb into a spreadsheet and call it fair market value.
The income, market, and asset approaches still apply. Which one carries the conclusion depends on the company and the interest. A holding company full of marketable assets is a different analysis than an operating business whose value is in earnings.
Discounts have to match the interest that passed
Estate tax fights often land on discounts for lack of control and lack of marketability. Those discounts are real when the decedent’s interest actually lacked control or a ready market. They are not a standard percentage. The IRS challenges amounts that look formulaic, or that ignore the Chapter 14 special valuation rules when those rules apply to the entity.
The report has to value the interest that was included in the estate — not a hypothetical 100 percent of the company, and not a gift of a different block made years earlier — unless that is actually what passed.
Who should hire the appraiser, and when
Usually the estate, the personal representative, or counsel acting for them. Early is better: while the alternate-valuation decision and the description of the interest are still open, not after a return is already under exam. Corporate Valuations Inc. is the independent appraiser. We are not a substitute for the estate’s attorney or CPA.
If the same family also needs a lifetime gift appraisal, that is a separate date and a separate interest. Use the gift and estate tax service page for how we handle both; this article stays on the estate-tax, date-of-death question.
What you get
A USPAP-compliant written opinion of fair market value as of the valuation date, with the approaches, discounts, and 59-60 factors documented. If the IRS later examines the value, that report is the work product we defend. Call 503-235-7777, request a fee estimate, or start from gift and estate tax valuations.
Estate tax valuation FAQs
What date is a closely held business valued for estate tax?
The date of death, unless the estate properly elects the alternate valuation date six months later. The appraiser uses the legally specified date, not a convenient year-end, and documents conditions as of that date.
Is this the same as a gift tax appraisal?
Same fair market value standard, different date and usually a different interest. A lifetime gift is valued when the gift is made. An estate tax valuation is valued when the owner died. Do not reuse a gift report as the estate number unless the dates and the interest actually match.
Do you testify if the IRS challenges the value?
When retained for that scope, yes. The annual or one-off estate appraisal is written so it can be defended. Testimony is a separate engagement letter if the exam turns into a dispute.