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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Family Entity Valuation Discounts
This free, guided checker walks your team through the key decision points for Family Entity Valuation Discounts. 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 interest being valued a non-controlling (minority) interest in a family limited partnership or family LLC that the transferor and the transferor's family together control?
A discount for lack of control depends on the subject interest lacking the power to compel distributions or a sale, not on the family's aggregate position. Rev. Rul. 93-12 confirms that family holdings are not aggregated to deny a minority discount, but a transferred interest that itself controls the entity is valued at the control level.
Value the interest at its actual level of value under the general fair market value standard of Rev. Rul. 59-60.
Official guidance: IRS estate and gift tax valuation
What transfer or event fixes the valuation date and the standard of value?
The event fixes both the valuation date and the standard of value. A lapse of a voting or liquidation right in a family-controlled entity is itself a transfer under IRC Section 2704(a), separate from any gift of the interest, so identify it before measuring discounts on the remaining interest.
Value the gifted interest at fair market value under Treas. Reg. Section 25.2512-1 and test the restrictions below. Value the included interest under IRC Section 2031 and carry the Section 2036 inclusion test below. Value the interest at fair market value so any bargain element is identified as a gift. Treat the lapse of the voting or liquidation right as a transfer under IRC Section 2704(a).
Official guidance: IRS estate and gift tax valuation
Does a buy-sell agreement, option, or other restriction in the governing documents fix, cap, or depress the price at which the interest can be sold or the entity liquidated below what an unrelated buyer and seller would agree?
IRC Section 2703(a) disregards price-fixing options, agreements, and restrictions when valuing the interest, unless the taxpayer proves the Section 2703(b) exception. Screen buy-sell agreements, rights of first refusal, and put or call provisions here, because a below-market price term that fails the exception is ignored and the interest is valued as if it did not exist.
Use the interactive tool above to see how this applies to your situation.
Official guidance: IRS estate and gift tax valuation
Does that agreement or restriction satisfy all three requirements of IRC Section 2703(b) - a bona fide business arrangement, not a device to transfer to family for less than full and adequate consideration, and terms comparable to those unrelated parties would accept at arm's length?
All three prongs of IRC Section 2703(b) must be satisfied; failing any one causes the restriction to be disregarded. The arm's-length-comparability prong is the most common failure for family arrangements, so document comparable third-party agreements rather than asserting a business purpose alone.
Disregard the price restriction under IRC Section 2703(a) and value the interest without it.
Official guidance: IRS estate and gift tax valuation
How do the governing document's limits on the holder's ability to force a liquidation or withdraw compare to the default rules under the applicable state law?
IRC Section 2704(b) disregards restrictions on liquidation that are more restrictive than the state-law default and that the transferor's family can remove, valuing the interest as if the extra restriction were absent. Compare the agreement clause by clause to the state default and to the IRC Section 2704(b)(3) exceptions before relying on any liquidation limit to support a discount.
Disregard the applicable restriction under IRC Section 2704(b) and value using the state-law default liquidation rights.
Official guidance: IRS estate and gift tax valuation
Was the entity formed and operated for a legitimate and significant non-tax business purpose, with the transferor receiving an interest proportionate to the assets contributed (a bona fide sale for adequate and full consideration under IRC Section 2036)?
IRC Section 2036 excepts a bona fide sale for adequate and full consideration, which for a family entity turns on a genuine, documented non-tax reason for the entity and a capital account proportionate to what was contributed. If the exception is satisfied, Section 2036 does not apply regardless of the transferor's later conduct; if it fails, inclusion still requires that the transferor also retained enjoyment, income, or control, which the next question tests.
Apply the bona fide sale exception; IRC Section 2036 does not include the contributed assets on this ground, and the interest is valued with its supportable discounts.
Official guidance: IRS estate and gift tax valuation
After forming the entity, did the transferor keep personal assets and entity assets separate, retain enough assets outside the entity to live on, respect entity formalities, and avoid using entity assets for personal expenses or retaining control over distributions?
Because the bona fide sale exception failed at the prior step, IRC Section 2036(a) will include the contributed assets only if the transferor also retained enjoyment, income, or the right to control who benefits, shown by commingling, personal use of entity funds, disproportionate distributions, or retained distribution control. Document arm's-length operation from inception, because these facts are judged over the entity's whole life, not just at formation.
Value the interest with supportable lack-of-control and lack-of-marketability discounts under Rev. Rul. 93-12. Include the date-of-death value of the contributed assets in the gross estate under IRC Section 2036(a).
Official guidance: IRS estate and gift tax valuation
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