Business Valuations Blog

Tax-Related Valuations: Revenue Ruling 59-60 and Sure Things in Business Valuation

The sun will rise each morning in the east… that’s a sure thing.  People will continue to post way too much personal information about themselves on Facebook… that’s a pretty sure thing.  LeBron James is stepping to the line for two free throws with the game hanging in the balance… well, there’s nothing sure about that (had to get that jab in – as you can tell, my LeBron angst still hasn’t completely subsided).  Kidding aside, there aren’t many things these days that can be considered a sure thing. 

One sure thing in business valuation engagements for income tax, estate tax, gift tax or other Federal tax purposes is that the tenets of Revenue Ruling 59-60 must be considered or it may be difficult to support the concluded value in Tax Court.  Revenue Ruling 59-60 outlines the approaches, methods and factors to be considered in valuing ownership interests in closely-held entities for Federal tax purposes.  The following list outlines the eight factors for consideration in Revenue Ruling 59-60:

  1. The Nature and History of the Business
  2. Economic Outlook
  3. The Book Value of the Company and the Company’s Current Financial Condition
  4. Future Earnings Capacity
  5. Dividend-Paying Capacity
  6. Marketability and Size of the Interest Being Valued
  7. The Value of Comparable Publicly-Traded Stocks
  8. Goodwill and the Existence of Other Intangible Assets

These eight factors need to be addressed in any valuation report that is prepared for Federal income tax purposes.  Missing one of these items could hinder the defensibility of the concluded value in the report.  Therefore, it is imperative that that the inclusion and consideration of these factors is a sure thing in any valuation analysis that is performed for tax purposes. 

Have questions about tax-related valuations for your company?  Post a comment below, or contact our Business Valuation Services by calling 440-449-6800.

Picture courtesy of Domenic Gareri / Shutterstock.com.

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