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IRS Issues Regulations Restricting Use of the Alternate Valuation Method

Alternate Valuation

The IRS has issued proposed regulations regarding the Alternate Valuation Method.  Since the last economic downturn began in late 2007, business appraisers have taken the economic downturn into account in order to value businesses.  The advantage of an economic downturn in business appraisals is that often times, businesses shows lower values.

The lower values make estate tax planning and estate tax assessments easier on estates as they pay less tax in those situations.  Catching on to the situation, the IRS has issued final regulations requiring valuations on the alternate valuation date to disregard changes in ownership as part of the valuation.

Editor’s Comment

Since the economic down turn, many business owners have rightfully taken advantage of this opportunity to contribute higher volumes of stock to their trusts and other estate planning entities.  The problem with some of the concept is that some valuators have overlooked the fact that estates will typically disregard the number of shares held on one date to the next and value the stocks held on the alternate valuation date.  This is where appraisers get it wrong!  You must look at the number of shares held and do a one-apple-to-one-apple valuation each time the number of shares changes.

It is also worthwhile to note that an annual appraisal of a business should be done once each year in order to take advantage of peaks and troughs in the economic cycle.  Many times the trough can be used to take advantage of estate planning, while the peaks can be used to attract buyers for the business.

By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors