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There are many situations
that may occur which can trigger the need
for a business to be appraised . . .
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- Buy/sell transactions between business owners
- Purchase or redemption of minority shareholder interests
- Business dissolutions
- Divorce (a leading cause!)
- Employee stock ownership plans
- Purchase from/or sale to family members
- Forced repurchase of dissenting shareholder interests, and
- Estate and gift tax valuations.
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Some of these transactions involve arm's length valuations; some are considered non-arm's length.
There is a point in the life of every business where the owners consider either sale of that
business to an outsider (which includes sale to key personnel) or a transfer to family members through a sale and/or gifting plan. Often an entrepreneur wants to be sure he is getting a fair
price in an outside sale. One important way to try to insure top value is to first have the business appraised under recognized appraisal standards to determine an appropriate valuation. With this
valuation, the business owner can then venture into the marketplace for a buyer, confident that he has a firm monetary starting point from which to begin marketing his company.
Frequently, the business owner, when informed of the IRS requirements for sales price
determination, will say, "It's my business. I'll sell it, for whatever I desire!" That is fine in regards
to sales to outsiders. Sales to outsiders are usually deemed to be arm's length by definition. However, on transfers to family members, there is a well defined set of standards required by the
government. In related party transfers, the IRS's position is that the business is probably going to
be grossly undervalued, intentionally, by the family. If after a death has occurred, an estate tax return is filed and the IRS audits an improper valuation, additional taxes and severe
undervaluation penalties can be incurred.
The landmark guideline to valuation of a business is Revenue Rule 59-60. In that comprehensive
ruling, the IRS has established the basic guidelines for busines valuation. It is our philosophy that
by following the appropriate valuation standards, we will deliver a valuation that will adhere to the IRS standards and requirements and attempt to provide the business owner with a valuation that
will not be subject to later audit change by the IRS. Please contact us to learn how proper valuation planning can ensure a trouble-free transfer of a business to family members.
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Irvine, CA: 19742 MacArthur Blvd, Suite 111, Irvine, CA 92612, 949/833-8084
San Clemente, CA
: 616 S. El Camino Real, Suite G-8, San Clemente, CA 92672, 949/366-0734
Copyright 1999-2008, Andrew Nelson & Company, Certified Public Accountants, A Professional Corporation
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