IRS Guidelines for Valuing a Closely-Held Business
In Revenue Ruling 59-60, the IRS set forth a series of factors for the valuation of a closely-held business.
These eight factors are:
Nature and history of the business, including factors that will affect the value of the business.
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Business environment, including the national economic outlook and the ability of the business to compete within its industry.
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Company's financial position, including book value and it's growth.
Earning capacity, including earning trends
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Capacity of a corporation to pay dividends, considering the ability of shareholder-employees to substitute salaries and bonuses for dividends
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Intangible values, such as goodwill
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Any previous sales of a corporation's stock
Comparison with the value of similar companies, such as publicly-traded corporations in the same line of business.
There is no one recommended approach to valuing closely-held business interests. These guidelines and their relative importance to the type of business should be carefully considered. For example, the IRS tends to place considerable weight on earning capacity in valuing a business, particularly one that sells products or services.