How the IRS Values Non-Controlling Interests in S Corps with Job Aid Commentary by the Original IRS Champion

June 2015 Softcover (138 pages)

Michael Gregory

Birch Grove Publishing

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 has been 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.

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Table of Contents

FOREWORD
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