Valuation for Tax Purposes

Often, taxpayers wish to engage the cheapest valuation expert who will guarantee the smallest taxable position. The problem with this approach is that the tax implications, legal and expert witness expenses, and penalties and interest can dwarf the differential that would have been paid to do the work the right way, upfront.

Tax based valuation is subject to the requirements and restrictions imposed by the local taxing authority. In the U.S., that authority is the Internal Revenue Service (IRS). There are numerous court cases that highlight the IRS pursuit of large transactions, but taxpayers for smaller holdings often lose more in a fight with the IRS because they assume that their taxable interests will not garner attention. This can be a faulty and costly assumption.

The best approach to protecting your position with any taxing authority is obtaining a professional valuation that meets the tax authority requirements while properly reflecting the benefits and risk associated to the valued interests. This requires a thorough and well documented analysis.

The IRS approach to valuation is based on a series of published Revenue Rulings, Technical Advice Memorandums, Private Letter Rulings. Additionally, the IRS has historically pursued high-profile, bad-fact cases to attempt to scare valuation professionals and estate attorneys to accept benchmarks based on these bad-fact cases.

The leadership team at VFP participates in curriculum development for NACVA and teaches courses that require us to stay current with the requirements for tax driven valuations. Our work in the U.S. is performed for: estate tax and gift tax planning and filing, purchase price allocations that establish tax basis after a transaction, conversion of C corporations to S corporations, compensation in the form of options or restricted stock, family limited partnership values, transfer pricing, and charitable gifting.

It is important to note that our valuations have withstood review and challenge at the IRS. If you have tax driven valuation needs, please call or click here to request a quote for services.