Page 18 - Business Valuation for Estates & Gift Taxes

valuation misstatement, fn 7 a substantial estate or gift tax valuation misstatement, fn 8 or a gross valua-
tion misstatement. fn 9 Penalties under this section range from the greater of 10 percent of the misstate-
ment or $1,000, up to 125 percent of the misstatement.

IRC Section 6701 (Subtitle F)

This section provides for penalties on any person who aids, assists, or advises with respect to the prepa-
ration of any portion of a tax return who knows that such portion will result in a material understatement
of the tax liability of another person. Penalties are $1,000 for matters related to individuals and $10,000
for matters related to corporations. This section does not require the knowledge of the taxpayer in order
for the penalty to apply.

Treasury Department Circular 230 fn 10

Circular 230 is the common name given to the body of regulations promulgated from the enabling stat-
ute found at Title 31, USC Section 330. Circular 230 is a document containing the statute and regula-
tions detailing a tax professional’s duties and obligations while practicing before the IRS, authorizing
specific sanctions for violations of the duties and obligations, and describing the procedures that apply to
administrative proceedings for discipline. Title 31 seeks to ensure tax professionals possess the requisite
character, reputation, qualifications, and competency to provide valuable service to clients in presenting
their cases to the IRS. In short, Circular 230 consists of the "rules of engagement" for tax practice. The
underlying issue in all Circular 230 cases is the tax professional’s "fitness to practice" before the IRS.

As noted previously, revenue rulings are official interpretations by the IRS of the Internal Revenue
Code, related statutes, tax treaties, and regulations. Valuation analysts should take care, however, to
carefully assess the applicability of a revenue ruling to their engagements because of the fact-specific in-
terpretations.

One of the seminal revenue rulings in the valuation profession is Revenue Ruling 59-60 which is dis-
cussed in the following section.

IRS Revenue Ruling 59-60

This ruling provides guidance regarding the valuation of the stock of closely held corporations or the
stock of corporations where market quotations are not available.

According to Revenue Ruling 59-60, property included in the gross estate, or made the subject of a gift,
shall be taxed on the basis of the property value at the time of the decedent’s death, the alternate valua-
tion date if elected, or the date of the gift. Revenue Ruling 59-60 states that a determination of fair mar-
ket value will depend on the circumstances in each case. Sound valuations will be based upon all rele-
vant facts, but common sense, informed judgment, and reasonableness must enter into the process of

fn 7 Within the meaning of IRC Section 6662(e).

fn 8
Within the meaning of IRC Section 6662(g).
fn 9 Within the meaning of IRC Section 6662(h).

fn 10
For details see www.irs.gov/Tax-Professionals/FAQs:-Enrolled-Agent-Continuing-Education-Requirements.

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