IRS Revenue Ruling 59-60

Definition

IRS Revenue Ruling 59-60 is a key guideline issued by the Internal Revenue Service that provides instructions on how to value closely held businesses for estate and gift tax purposes. This ruling emphasizes the importance of marketability and control in determining the value of minority interests, often leading to discounts when valuing minority ownership stakes in a company. Understanding this ruling helps appraisers and business valuators establish a fair and equitable valuation while considering factors that may affect a minority interest discount.

5 Must Know Facts For Your Next Test

1. IRS Revenue Ruling 59-60 sets forth specific guidelines for valuing closely held businesses, primarily for tax-related purposes.
2. The ruling highlights the significance of controlling interest versus minority interest, emphasizing that minority stakes are typically less valuable due to lack of control.
3. Marketability discounts are often applied when valuing minority interests, as these shares are usually less liquid compared to publicly traded shares.
4. Appraisers must consider both qualitative and quantitative factors when applying the principles set out in Revenue Ruling 59-60.
5. Understanding this ruling is crucial for tax professionals, attorneys, and business owners when navigating the complexities of estate planning and compliance.

Review Questions

• How does IRS Revenue Ruling 59-60 influence the application of minority interest discounts in business valuations?
  • IRS Revenue Ruling 59-60 significantly impacts the application of minority interest discounts by establishing guidelines that recognize the reduced value of minority stakes in closely held businesses. The ruling underscores that because minority interests lack control and are typically less marketable, they should be valued at a discount compared to majority interests. Appraisers must carefully consider these factors when determining fair market value for estate and gift tax purposes.
• Discuss how the principles outlined in IRS Revenue Ruling 59-60 relate to the concept of fair market value in business valuations.
  • The principles outlined in IRS Revenue Ruling 59-60 are closely tied to the concept of fair market value, as they guide appraisers in evaluating how lack of control and marketability affects the valuation of closely held businesses. The ruling helps ensure that valuations align with the idea that fair market value reflects what a willing buyer would pay for an asset, considering all relevant aspects. By integrating these principles, appraisers can deliver more accurate assessments that comply with IRS standards while considering the unique characteristics of minority interests.
• Evaluate how adherence to IRS Revenue Ruling 59-60 might affect strategic decision-making for business owners with significant minority interests.
  • Adherence to IRS Revenue Ruling 59-60 can significantly influence strategic decision-making for business owners holding significant minority interests by shaping their understanding of valuation and potential financial outcomes. Recognizing how minority interest discounts apply allows owners to better assess their stake's worth during estate planning or transactions. This knowledge can inform decisions about investment strategies, potential sales, or negotiations with other stakeholders, ultimately guiding owners toward more informed financial choices based on realistic valuation expectations.

Related terms

Minority Interest Discount:

A reduction in the value of a minority ownership stake in a business due to the lack of control and marketability compared to majority interests.

Fair Market Value:

The price at which property would change hands between a willing buyer and a willing seller, both having reasonable knowledge of relevant facts.

Appraisal: The process of developing an opinion of value for an asset or business, typically conducted by a qualified appraiser.