How the IRS Values Non-Controlling Interests in S-Corps

with Job Aid Commentary by the Original IRS Champion

The IRS internal white paper entitled “The IRS Valuation of Non-Controlling Interests in Business Entities Electing to be Treated as S Corporations for Federal Tax Purposes, A Job Aid for IRS Valuation Professionals” dated October 29, 2014 is reviewed, and Michael Gregory provides insights to help you the business appraiser respond to this commentary.

This recently obtained IRS document presents background on this topic area from the perspective of the IRS. This document was written to help IRS professionals that are examining S-Corp valuations. Major elements of this document are presented and Michael Gregory offers his insights as to what this might mean for business valuers providing S-Corp valuations for federal tax purposes.

The book is organized into two parts

Part One introduces the topic of valuing non-controlling interests in S Corps to set the framework related to this issue. This is an updated chapter from "Business Appraisals and the IRS" offering fresh insights on this topic.

Part Two contains the IRS Non-Controlling Interest in S Corps Job Aid on the right with commentary by Michael Gregory on the left. By reading the IRS Non-Controlling Interest in S Corps Job Aid on the right with commentary on the left, this leads the reader back to specific commentary from Part One to assist the reader in gaining additional insight on this issue.

Table of Contents

These are the Table of Contents of the How the IRS Values Non-Controlling Interests in S-Corps

  • Forward
  • Executive Summary
  • Discussion and Analysis
  • Introduction
  • The Identification of the Property to be Valued
  • Valuation - Background and Approach
  • Additional Factors for Consideration
    • Public Market Data - C Corporations
    • Shareholders' Agreements
    • Appropriate Tax Rates
    • The Universe of Hypothetical Buyers
    • The Hypothetical Seller
    • The Hypothetical Sale
    • Identifying the Most Important Factors
  • Evidence-Based Valuation Analysis
    • A View from the Tax Court
    • A View from Academia
  • Theory-Based Valuation Analysis
  • Weighting of Factors and Approaches
  • Assessment and Synthesis
    • Setting a Framework for Evaluation
    • Example 1
    • The Tax Status of the Electing S Corporation
    • Example 2
    • Cost of Capital and Lack of Marketability
    • Summary
Appendices
  • APPENDIX A: TEXT OF REVENUE RULING 59-60.1959-1 CB 237
  • APPENDIX B: A VIEW FROM THE TAX COURT
  • APPENDIX C A VIEW FROM THE ACADEMIC COMMUNITY