In the “Standard of Value: When Should Fair Value Replace Fair Market Value?” presentation at the NACVA/IBA 2009 Consultants Conference last month in Boston, Marc Bello of Edelstein & Company, asked attendees who used and referred to Revenue Ruling 59-60; many hands were raised. When asked who used and referred to Revenue Ruling 77-287, few attendees raised their hands. Quoting from Section 2. Nature of the Problem of 77-287 (which amplifies 59-60):
It frequently becomes necessary to establish the fair market value of stock that has not been registered for public trading when the issuing company has stock of the same class that is actively traded in one or more securities markets. The problem is to determine the difference in fair market value between the registered shares that are actively traded and the unregistered shares. This problem is often encountered in estate and gift tax cases. However, it is sometimes encountered when unregistered shares are issued in exchange for assets or the stock of an acquired company.
Bello strongly encouraged appraisers to become familiar with 77-287 and, in the narrative portion of their valuation reports, to explain its content in relation to the subject appraisal. To drive his point home, Bello said, “You’ve got to look to authority and interpret that authority with facts and examples to determine the appropriate standard of value. Valuation reports are our direct testimony—be sure to put this in your report.” If you’re unfamiliar with 77-287, visit our Free Resources page to download this 5-page Revenue Ruling. Or, if you want the Ruling and more authoritative information, check out the newly published BVR’s Business Valuation Sourcebook table of contents here—or to order the Sourcebook, click here.
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