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The U.S. Treasury Regulations set forth the following definitions of fair market value.

"...The net amount which a willing purchaser...would pay for the interest to a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts." Treas. Regs. §20.2031-3.

Some of the factors which are considered by the IRS are the:
  • History and nature of the business
  • Economic outlook in general, as well as the condition of a particular industry
  • Book value of the stock
  • Company's earning capacity
  • Capacity to pay dividends
  • Good Will of the company
  • Recent sales of company stock
  • Value of similar businesses which are publicly traded.
    Revenue Ruling 59-60,1959-1 C.B. 237

NOTE: Some factors will carry more weight in some valuations than others. No single mathematical formula can be applied. This is a very complex area and one should seek a business valuation specialist.

 

Every attempt is made to keep information on this and related sites current and accurate. However, you should always consult your advisor before taking action based on information you get from this site or any other source. There may be other factors or options that would apply to your specific situation that are not covered in the brief introductory information presented here.