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Estate and Gift Taxes
Valuations of closely-held business interests are essential for estate planning, gifting, estate settlement and Internal Revenue Service (IRS) reporting of estate or gift transactions. The goal of estate tax planning is to provide liquidity and continuity of the business. A smooth and stable transition is paramount to maximize the business owner's investment. Also, for high net worth individuals holding real property and marketable securities, a valuation is essential to preserve their assets for future generations.
The following are examples of the type of entities, interests and situations where a business appraisal may be needed:
- Family limited partnership and limited liability companies, including entities holding real estate, marketable securities, or closely held common stock
- Gifting of closely held stock and partnership/LLC interests
- Buy-sell and shareholder agreements
- Life insurance planning and funding
- Creation of non-voting stock for gifting purposes
- Stock options held by estates
- Restricted public stock held by estates
- Conversion of C-corporation to subchapter-S corporation status
- Preferred stock recapitalizations
Family limited partnerships (FLPs), limited liability companies (LLCs), and other types of entities have been a popular estate planning tool for years. Aside from the business purposes of such entities, such as centralized management and protection of assets from creditor claims, they also may offer tax advantages through valuation discounts. The most common discounts are for lack of control and lack of marketability. These discounts are derived from actual market evidence but must also be supported by the facts and circumstances unique to every entity. In order to minimize the possibility of an IRS challenge, a professionally prepared, well-substantiated valuation is essential.
The following factors affect the amount of discount that may be applied:
- Size of interest
- Legal form of ownership
- Corporation
- General partnership
- Limited partnership
- Limited liability company
- Tenancy-in-common - Type of assets held by the entity
- Restrictions on control
- Restrictions on transferability
We work with tax attorneys, accountants, and other estate planning professionals in their efforts to help clients achieve their succession planning goals. Our appraisals are guided by applicable IRS code, rulings and precedent such as IRS Revenue Ruling 59-60. In addition we follow the highest standards in business valuation as promulgated by the American Society of Appraisers and the Uniform Standards of Professional Appraisal Practice (USPAP). The result is an independent and professional opinion of value that can withstand scrutiny and challenge.