Page 21 - Business Valuation for Estates & Gift Taxes

This revenue ruling allows a minority interest discount to be applied to the valuation of a gift of a minor-
ity interest in a closely held corporation between family members even if the family members as a group
control the corporation. The ruling cites the definition of fair market value found in Section 25.2512-1
of the Gift Tax Regulations as support. Revenue Ruling 93-12 supersedes Revenue Ruling 81-253,
which previously did not allow for minority discounts if the family unit maintained control of the corpo-
ration after the transfer.

Adequate Disclosure of Gifts

In 1999, the IRS issued regulations regarding adequate disclosure of gifts on gift tax returns. These regu-
lations include a three-year statute of limitations beyond which the IRS cannot challenge a gift tax return
provided that the gifts were adequately disclosed. The regulations provide a list of information that must
be reported on a gift tax return (or in an attached statement) in order for the gift to be considered ade-
quately disclosed. In lieu of providing the required information, the regulations allow for the attachment
of a business valuation report. In order to satisfy the adequate disclosure requirements, the business val-
uation report must meet the following requirements:

1. The appraisal is prepared by an appraiser who satisfies all of the following requirements:

a. The appraiser is an individual who holds himself or herself out to the public as an ap-
praiser or performs appraisals on a regular basis.

b. The appraiser is qualified to make appraisals of the type of property being valued because
of his or her qualifications, as described in the appraisal that details the appraiser's back-
ground, experience, education, and membership, if any, in professional appraisal associa-
tions.

c. The appraiser is not any of the following people:

i. A donor or donee of the property

ii. A family member of the donor or donee

iii. A person employed by the donor, the donee, or a member of the family of either

2. The appraisal contains all of the following:

a. The transfer date, the date on which the transferred property was appraised, and the pur-
pose of the appraisal.

b. A description of the property which includes necessary information.

c. A description of the appraisal process employed with the following details:

i. Assumptions, hypothetical conditions, and any limiting conditions and restrictions
on the transferred property that affect the analyses, opinions, and conclusions.

d. The information considered in determining the appraised value, including (in the case of
an ownership interest in a business) all financial data that was used in determining the
value of the interest that is sufficiently detailed so that another person can replicate the
process and arrive at the appraised value.

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