Estates, Gifts, And Trusts (EGT)

Valuation of Corporate Stock (Portfolio 831)

  • This Portfolio discusses the methods for valuing corporate stock interests when the value cannot be readily determined by reference to an established market.


Tax Management Portfolio, Valuation of Corporate Stock, No. 831, discusses the methods for valuing corporate stock when the value can be readily determined by reference to an established market. It also deals with the valuation of corporate stock when the value can not be readily determined by reference to an established market. It begins with the criteria used by the IRS for valuing stock, particularly Rev. Rul. 59-60, as well as the cases interpreting the IRS’s standards. It also discusses the effect of buy-sell agreements on the value of stock, and delineates the requirements for an agreement that will be respected for transfer tax valuation purposes.

The portfolio reviews the impact of the Chapter 14 special valuation rules on the valuation process, particularly the effect of §§2701 and 2704. A portion of the portfolio is devoted to the various discounts available in valuing corporate interests, including lack of marketability, minority interests, and securities law restrictions. In addition, the portfolio sets forth the criteria for obtaining a discount from the quoted market value of large blocks of publicly traded securities, the so-called “blockage” discount. In discussing all these topics, the portfolio reviews the statutory basis for valuation discounts, the significant elements and factors considered by the courts in deciding the appropriateness of a discount, and the valuation techniques used to determine the amount of a discount. Other topics are also discussed as they relate to the concept of valuation of corporate stock.

The portfolio concludes with Worksheets, two of which are charts that summarize the significant discount and blockage court decisions.

For more detailed discussion of related topics, see 835 T.M., Transfers of Interests in Family Entities Under Chapter 14: Sections 2701, 2703 and 2704; 833 T.M., Section 2032A — Special Use Valuation, and 830 T.M., Valuation: General and Real Estate.

This portfolio may be cited as Mezzullo, 831 T.M., Valuation of Corporate Stock.

Table of Contents

I. Introduction
II. Valuation of Publicly Traded Stock
III. Blockage and Restricted Stock
IV. Valuation of Closely Held Stock
V. Restrictive Agreements
VI. Chapter 14 Special Valuation Rules – Sections 2701 and 2704
VII. Discounts and Premiums
VIII. Penalties

Louis Mezzullo
Consulting Partner
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