Estate Tax / Gift Tax / Income Tax Valuations

Four fundamental changes have occurred in the last 15 years that have raised the importance of thorough, well-reasoned, and empirically supported valuations for estate, gift, and income tax. First, the Tax Court has done an about-face. Prior to the mid-1980s, the Tax Court often exercised its "Solomon-like wisdom." Like the Old Testament's King Solomon, when faced with contradictory and self-serving valuations, the Tax Court often "split-the-difference" between the opposing experts' valuation opinions. However, by the mid-90s the Tax Court was more likely to either select an expert's valuation in total or derive a value based on its understanding of the facts." Second, the strong economy moved even the moderately wealthy into the highest tax brackets. This made even simple valuation planning very cost effective. As a result more taxpayers are electing to use valuation services to determine and plan for their tax liabilities. Third, in 1993, the Internal Revenue Service issued Revenue Ruling 93-12 which repealed the IRS's controversial "family attribution" Revenue Ruling 81-253. In other words, minority interest discounts would be allowed in the valuation of a minority interest, regardless of the control exercised by the entire family. And fourth, the use of the family limited partnership as a vehicle to obtain valuation discounts for asset holding entities has been adopted throughout the industry.

All of these factors contributed to the emergence of FMV Opinions, Inc. as the nation's leading valuation firm for estate, gift, and income tax valuations. With the Tax Court accepting the best valuation and no longer splitting the difference, taxpayers were willing to hire the best valuation firm and not the cheapest valuation expert. With the emergence of discounts as the critical valuation issue, taxpayers turned to FMV because of its extensive and broad proprietary empirical discount databases. In Estate of Kosman v. Commissioner, The FMV Restricted Stock Study? was deemed by the Tax Court to be vastly superior to other studies and the appraiser who relied on this vast empirical database won an easy victory on the discount for lack of marketability. This is clearly the direction that the Tax Court has taken in recent years, moving towards a more sophisticated empirical approach, rather than relying on the "benchmarks" and averages from previous studies. FMV also soon became recognized as the leading family limited partnership valuation firm. FMV performs over 300 family limited partnership valuations annually. The assets of these partnerships consist of real estate, art, antiques, collectibles, marketable securities, and operating companies.

Because of the great amount of scrutiny by the IRS, it is also important to have the family limited partnership's real estate appraisals performed by a firm that is also recognized as a discount valuation expert. To provide our customers with a better valuation product, FMV's MAIs perform real property appraisals that are then used by the firm's discount valuation experts in their analysis of the fair market value of the partnership interest.

In determining the fair market value of an asset for tax purposes, it is increasingly important that the valuation expert read and understand all of the relevant IRS promulgations and Tax Court cases regarding valuation. In fact, the case Haggerman v. Commissioner, selected the IRS's expert's valuation opinion in its entirety, in part, because that expert had researched and reviewed IRS proclamations and Tax Court cases as a part of the valuation process. In fact, FMV Opinions, Inc. teaches continuing education courses for various State Bar Associations, as well as others, on the impact of IRS statements and Tax Court decisions on valuation and valuation discounts.

FMV's valuation philosophy is that FMV sells valuations, not values. FMV is dedicated to "getting it right." FMV does not perform valuations so that the taxpayer pays the lowest taxes but rather performs valuations to determine the true fair market value of an interest or asset. This dedication means that the taxpayer is less likely to get challenged, will not overpay his or her taxes, and is more easily defended if challenged. Fortunately for the taxpayer, the empirical data tend to indicate higher discounts than are often considered "normal" by the IRS.

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