Page 19 - Business Valuation for Estates & Gift Taxes

weighing those facts and determining their significance. In addition, Revenue Ruling 59-60 explicitly
states that, "No formula can be devised that will be generally applicable to the multitude of different
valuation issues arising in estate and gift tax cases."

The ruling includes eight factors that "require careful analysis in each case":

1. The nature of the business and the history of the enterprise from its inception.

2. The economic outlook in general and the condition and outlook of the specific industry in partic-
ular.

3. The book value of the stock and the financial condition of the business.

4. The earnings capacity of the company.

5. The dividend-paying capacity.

6. Whether or not the enterprise has goodwill or other intangible value.

7. Sales of the stock and size of the block of stock to be valued.

8. The market price of stocks of corporations engaged in the same or a similar line of business hav-
ing their stocks actively traded in a free and open market, either on an exchange or over-the-
counter.

Revenue Ruling 59-60 includes a definition of fair market value that is similar to the definition found in
Section 20.2031-1(b) of the Estate Tax Regulations and Section 25.2512-1 of the Gift Tax Regulations
discussed previously.

Revenue Ruling 59-60 also includes a discussion of when restrictive agreements such as buy-sell agree-
ments would or would not be determinative of fair market value for estate and gift tax purposes.

Revenue Ruling 59-60 was later modified by Revenue Ruling 65-193, and amplified by Revenue Ruling
77-287, Revenue Ruling 80-213, and Revenue Ruling 83-120.

IRS Revenue Ruling 65-193

Revenue Ruling 65-193 modifies Revenue Ruling 59-60 to delete statements in section 4.02(f), that "[i]n
some instances it may not be possible to make a separate appraisal of the tangible and intangible assets
of the business. The enterprise has a value as an entity. Whatever intangible value there is, which is sup-
portable by the facts, may be measured by the amount by which the appraised value of the tangible as-
sets exceeds the net book value of such assets." fn 11 Revenue Ruling 65-193 goes on to state, "[t]he in-
stances where it is not possible to make a separate appraisal of the tangible and intangible assets of a
business are rare and each case varies from the other. No rule can be devised which will be generally
applicable to such cases."

fn 11
IRS Revenue Ruling 59-60(4)(02).

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