September 25, 2023

Income, Estate and Gifts

Business appraisal reports are generally prepared under the standard of fair market value and identify IRS Revenue Rule 59-60 as the authority or source. From this, it is deduced that the report meets the criteria for business appraisals prepared for income, estate, and gift tax purposes. However, identifying this standard does not necessarily insure a report will satisfy the requirements for appraisal reports for the IRS or Tax Court.

Frequently, appraisal firms take a “one-size-fits-all” approach.  Many appraisers who use this approach may accurately reflect the value of the interest, but neglect to consider how Congress and the Tax Court have shaped the standard to be applied in income, estate, and gift taxation.

One such example can be in the area of goodwill.  For matrimonial purposes in the State of New York, the definition of goodwill can be broad; however, it has a more specific meaning for tax purposes. Using the broader New York definition would subject an interest to a larger value, for instance. 

Conversely, if a property or business is subject to a bargain lease by a descendent of the holder, the value of the property could be impacted when it comes to other appraisal purposes.  However, for tax purposes, the lease’s bargain element may be ignored in favor of its market value to a third party.

Greene Valuation has experience in the following areas of income, estate, and gift valuation services:


Charitable contributions

Internal Revenue Code requires appraisal reports by an independent appraiser meeting stringent requirements to qualify for a tax deduction of non-publicly traded stock. At Greene Valuation, we regularly appraise these business and intangible assets, which require special planning and timing for both the appraisal and delivery of the report to comply with these requirements.


Conversion of Subchapter C corporations to Subchapter S corporations

When a C corporation converts to an S corporation status, any appreciation during its C status can be subject to corporate tax rates in addition to capital gain taxes for the individual investor. While this has been a more serious problem now under Small Business Jobs Act of 2010, holding periods for C corporations have been significantly reduced. Unique considerations are required at the time of sale of a closely held C corporation. At Greene Valuation, we have been asked to value these companies and their intangible assets, which can impact the income and capital gains taxes.


Family limited partnerships and LLCs

This area includes valuations for marketable securities, real estate, and works of art.  Over the years, valuing family partnerships and limited liability companies has been a significant part of Greene Valuation’s services to our estate and gift tax clients. We have lectured to CPA firms and business appraisal groups over the years on this very topic. We have also been called in for planning in this area.  Rather than preparing a very prosaic report summarizing values based on discount studies, we take a very proactive stance and value these companies considering many variables.

For more, read our article “Are minority interest discounts really appropriate in valuing non-controlling interests in holding real estate companies?” 

One aspect that can be considered a part of the family limited partnership area is the valuation of works of art held within these partnerships. To explore this area further, please contact us to discuss it.


Undivided interest in real estate

Providing appraisals to determine marketability of undivided interest in real estate is an important service that we provide estate planning professionals. This seems to be a growing area for several reasons including alternatives to real estate limited liability companies.  Tax Court has recently opined on this regarding residential property.  Does your current appraisals consider the Court’s findings?


Start-up companies

Over the years, Greene Valuation has appraised start-up companies in the areas of medicine, biotech, and computer software. This area can provide precipitous growth in a very short time.  It may appear unusual to list start-up companies in the area trust and estate value; but sometimes these companies can provide an excellent opportunity for estate planning. 

We have seen business appraisals limit the value of these companies to only the current value of the tangible assets. However, even at the beginning, these companies– with little more than an idea–can have intangible value. At Greene Valuation, we apply the most current techniques to properly value start-up companies.