Valuation Issues and Trends

Third-party appraisals of assets are increasing as a result of new compliance rules in financial reporting, a litigious business environment, and the growth in estate planning. Fueling the demand are baby boomers, who own their own businesses, reaching retirement age, and therefore require succession and estate planning.

More business are realizing the importance of valuation services performed by accredited, unbiased professionals, resulting in the increase of Valuation Services.

40 Percent of the nation’s GDP can be attributed to family businesses. However, only 1 in 3 survives to the 2nd generation and 10 to 20 percent the 3rd generation. Effective business succession planning is dependent on accurate business valuation services performed by professional firms, such as TAVAS, who understand the impact of specific legislation applying to special penalties for under valuation under Section 6662.

According to the Taxpayer Relief Act of 1997 and the IRS Restructuring and Reform Act of 1998, upon the death of the door, gift taxes cannot be challenged after a three year period if the gifts, when given, were adequately valued and disclosed as defined by the IRS. Any gift that is not adequately valued and disclosed is subject to examination and challenge by the IRS at any time, including and especially after the death of the donor. The professionals at TAVAS create a safe harbor for business owners with such concerns.

To adequately protect the parties, the business assets in buy-sell agreements must be based on the standard of Fair Market Value or as finally determined for estate tax purposes.

The value stated in a buy-sell or shareholder agreement may be finding on the parties but is not binding on the IRS for determining tax liability.

The IRS can assess penalties up to 40% of the unpaid tax on undervalued assets, including stock or business interests.