IRS Business Valuation Factors
The IRS has eight factors it will look for in the valuation of a closely held business:
- The nature and history of the business.
- The economic outlook in general and the outlook for the industry in particular.
- Book value (assets minus liabilities) and financial condition.
- Earning capacity.
- Dividend-paying capacity.
- Goodwill or other intangible value.
- Prior sales of stock of the operation.
- Comparison to similar, publicly traded companies.
The IRS has maintained that no fixed formula is universally applicable, except for formulas set out in a properly designed buy-sell agreement that are intended to approximate fair market value.