Page 14 - Business Valuation for Estates & Gift Taxes

position, a revenue procedure provides return filing or other instructions concerning an IRS posi-
tion.

 Private Letter Ruling (PLR)—A PLR is a written statement issued to a taxpayer that interprets
and applies tax laws to the taxpayer's specific set of facts. A PLR is issued to establish with cer-
tainty the federal tax consequences of a particular transaction before the transaction is consum-
mated or before the taxpayer's return is filed. A PLR is issued in response to a written request
submitted by a taxpayer and is binding on the IRS if the taxpayer fully and accurately described
the proposed transaction in the request and carries out the transaction as described. A PLR may
not be relied on as precedent by other taxpayers or IRS personnel.

 Technical Advice Memorandum (TAM)—A TAM is guidance furnished by the Office of
Chief Counsel upon the request of an IRS director or an area director in response to technical or
procedural questions that develop during a proceeding. A request for a TAM generally stems
from an examination of a taxpayer's return, a consideration of a taxpayer's claim for a refund or
credit, or any other matter involving a specific taxpayer under the jurisdiction of the territory
manager or the area director. A TAM is issued only on closed transactions and provides the in-
terpretation of proper application of tax laws, tax treaties, regulations, revenue rulings or other
precedents. The advice rendered represents a final determination of the position of the IRS, but
with respect to only the specific issue in the specific case in which the advice is issued. The
TAM does not have precedential value for a taxpayer, although the district director is bound by
the advice.

 Notice—A notice is a public pronouncement that may contain guidance that involves substantive
interpretations of the IRC or other provisions of the law.

 Announcement—An announcement is a public pronouncement that has only immediate or
short-term value. For example, announcements can be used to summarize the law or regulations
without making any substantive interpretation; to state what regulations will say when they are
certain to be published in the immediate future; or to notify taxpayers of the existence of an ap-
proaching deadline.

There is a lot of authoritative guidance that affects the business valuation profession. Therefore, it is im-
portant for valuation analysts to be familiar with the statutes, administrative rulings, and memoranda that
can have an impact on the conclusion of value within a valuation report. The following is an overview of
the significant authoritative guidance specific to estate and gift tax valuation.

Statutory Definition of Fair Market Value

One of the fundamental principles in valuation is the concept of "fair market value" and is the standard
of value required for gift, estate, and income tax valuations. Section 20.2031-1(b) of the Estate Tax
Regulations and section 25.2512-1 of the Gift Tax Regulations defines fair market value as

[T]he price at which property would change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or sell and both having reasonable knowledge of the
relevant facts.

Because this definition has been codified into the sections previously noted, it is primary legal authority
and is binding on courts, government, and individuals. Other notable sections of the IRC are discussed
as follows.

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