Estate, Gift, and Income Taxes

Valuations in this area are generally used for estate planning, estate settlement, and many income tax-related transactions. Valuations for this purpose require consideration of some unique issues, plus other special issues not generally found in most other types of valuation work. Because a large percentage of our work is in the area of IRS-related purposes. Unlike some other valuation practitioners, as a seasoned CPA, Christopher Kyanko is highly qualified to understand the nuances and IRS requirements for these types of engagements.

Some of the key issues include the following:

  • IRS rules, regulations, and case law for estate and gift tax valuations. There exists a very large body of laws and regulations in this area of valuation work. This is true for valuations of both large and small companies. Due to the large body of knowledge and resources required to perform these valuations properly, be careful of those who only “dabble” in this area. Rather, chose an appraiser who regularly performs valuations for estate and gift purposes.
  • Valuation discounts. Many taxpayers have been able to take advantage of valuation discounts for estate and gift-related valuations, which can result in tax savings. Depending upon your situation, an appraiser will consider minority interest discounts, lack of marketability discounts, key person discounts, tiered discounts and others.
  • Estate administration for small businesses. In some cases, where the size of the business owner’s estate is very small, and certain IRS requirements may not apply, a less formal valuation report may suffice. Your appraiser can assist you and/or your attorney in determining the most appropriate type of valuation analysis.
  • Spousal transfers of business interests. Where a business interest is being transferred to a spouse, a less formal valuation report may suffice.
  • Valuations for income taxes. There are literally dozens of types of income-tax related transactions that may require a valuation. These include:
    • charitable contributions of business property
    • conversion of property (conversion of C to S corporations and calculations of related built-in gains taxes)
    • purchase price allocations
    • recapitalizations
    • insolvency/bankruptcy
    • shares issued as employee compensation
    • reasonableness of compensation paid to owners
    • determination of tax basis for transferred assets
  • Increased scrutiny by IRS. In recent years, the IRS has strengthened its requirements for properly prepared valuation reports. Taxpayers are now subject to more penalties for undervaluing their businesses for estate or gift tax purposes. Taxpayers should choose appraisers with sufficient valuation credentials and experience, and who can certify their valuations.
  • Family limited partnerships (FLP’s). These entities often hold real estate and/or marketable securities as their primary assets. Valuations of these entities are often needed by families who are in the process of transferring wealth to future generations. The IRS has imposed strict rules and regulations regarding the use of FLP’s in estate tax planning, and by extension the valuation of these entities for that purpose.