IRC 409A Common Stock Valuation
This free, guided checker walks your team through the key decision points for IRC 409A Common Stock Valuation. Answer a few questions to see the likely approach and the evidence to document.
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Buy-Sell Agreement Price as Tax Value
This free, guided checker walks your team through the key decision points for Buy-Sell Agreement Price as Tax Value. Answer a few questions to see the likely approach and the evidence to document.
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This tool is a high-level valuation screening aid for general information only and is not a valuation, appraisal, accounting, tax or legal opinion. A defensible conclusion of value requires a qualified valuation specialist applying professional standards to entity-specific evidence.
The questions this tool walks you through
Here is what the checker asks and why each step matters. Prefer to talk it through? Contact us and we will help directly.
Is the business interest subject to a written buy-sell agreement, redemption agreement, option, or other restriction that fixes or limits its transfer price?
Section 2703(a) reaches any option, agreement, right, or restriction that lets an interest be acquired or used at less than fair market value, or that restricts the right to sell or use it. Identify the controlling document first; an informal understanding that is not legally binding generally does not fix value, and the common trap is treating a handshake arrangement as if it controlled the estate-tax figure.
No restriction applies, so value the interest at fair market value under IRC Section 2031 and Rev. Rul. 59-60 without regard to any agreement.
Official guidance: IRS estate and gift tax valuation
Was the agreement created after October 8, 1990, or substantially modified after that date?
Section 2703 applies only to rights and restrictions created after October 8, 1990, or substantially modified after that date, and a substantial modification includes a change to the price terms or a discretionary modification that is more than de minimis. Confirm the execution and amendment history, because a routine update to a fixed price can itself be a substantial modification that pulls an old agreement into Section 2703.
Analyze the grandfathered agreement under prior law and Rev. Rul. 59-60; Section 2703 does not apply, but the price still controls only if it meets the older bona fide arrangement and adequate-consideration standards.
Official guidance: IRS estate and gift tax valuation
Who owns the interests that are subject to the agreement's restrictions?
A right or restriction is deemed to meet all three Section 2703(b) requirements when more than 50 percent of the value of the property subject to it is owned by persons who are not members of the transferor's family, provided their interests carry the same restriction. Test this first, because most family businesses fail it and must then satisfy each of the three requirements independently.
The agreement is deemed to satisfy Section 2703(b) because unrelated parties own more than half of the interests subject to the same restriction, so the price generally controls. Apply full Section 2703(b) scrutiny to a family-controlled arrangement. Apply full Section 2703(b) scrutiny; the non-family safe harbor is unavailable. Resolve ownership, then test each Section 2703(b) requirement.
Official guidance: IRS estate and gift tax valuation
Is the agreement a bona fide business arrangement?
The first requirement asks whether the restriction furthers a real business objective - continuity of ownership, keeping the interest among working owners, or orderly succession - rather than merely shifting wealth. Document the business reason contemporaneously; a common trap is a family holding entity whose only demonstrable purpose is a valuation discount, which will not clear this prong.
The price is disregarded because the arrangement is not a bona fide business arrangement, so value the interest at fair market value under IRC Section 2031 and Rev. Rul. 59-60.
Official guidance: IRS estate and gift tax valuation
Does the agreement function as a device to transfer the interest to the transferor's family for less than full and adequate consideration?
The device test weighs whether the arrangement is really a substitute for a testamentary transfer: relevant facts include the relationship of the parties, whether the price was set at value when adopted, whether the decedent retained control or economic benefit, and whether the agreement was actually honored during life. Rev. Rul. 59-60 Section 8 frames the same inquiry, and a fixed price sitting far below current value is the classic device indicator.
The price is disregarded as a device to transfer value to family; value the interest at fair market value and treat any below-value lifetime transfer as a gift under IRC Section 2512.
Official guidance: IRS estate and gift tax valuation
Are the agreement's terms - its price or pricing formula, funding, and transfer restrictions - comparable to what unrelated parties would agree to in an arm's-length transaction?
Comparability is tested against the general practice of unrelated parties negotiating similar arrangements, drawing on evidence such as industry buy-sell customs, appraisals, and the terms independent buyers and sellers actually accept. Support the comparison with market evidence; a trap is assuming any commonly used formula is automatically comparable when the specific terms have never been benchmarked.
The price is disregarded because the terms are not comparable to arm's-length arrangements; value the interest at fair market value under IRC Section 2031 and Rev. Rul. 59-60.
Official guidance: IRS estate and gift tax valuation
How does the agreement set the transfer price?
The pricing mechanism decides how strongly the agreement fixes value: an appraisal at fair market value simply restates value, a formula or a periodically reset fixed price can control if it is maintained and comparable, and a stale fixed price is the weakest because it drifts away from worth. Reassess the mechanism against current value at each transfer, because a price that was reasonable when adopted can become a device or an off-market term as the business grows.
The agreed price equals independently appraised fair market value, so the agreement neither raises nor lowers transfer-tax value; the interest is reported at that fair market value. A formula price that genuinely tracks fair market value and meets Section 2703(b) can fix transfer-tax value; confirm the formula still approximates value at the transfer date. A fixed price that is genuinely redetermined on a regular schedule and meets Section 2703(b) can fix transfer-tax value even where it differs from a later appraisal. A fixed price never updated does not reflect full and adequate consideration and is disregarded; value the interest at fair market value under IRC Section 2031.
Official guidance: IRS estate and gift tax valuation
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