Business Valuation

Business Appraisals – Frequently Asked Questions

What is a business valuation?

A business valuation is an independent analysis that determines the value of an ownership interest in a company. The conclusion reflects the rights and privileges associated with the interest, the company’s financial performance, market conditions, and the assumptions required by the intended use.

Valuations are commonly needed for tax reporting, estate planning, transactions, financial compliance, and dispute resolution.

When is a business appraisal required?

A valuation is typically required when ownership is being transferred, reported to a taxing authority, or relied upon in a financial or legal decision.

Common situations include:

• Estate and gift tax reporting (IRS Form 709 or 706)
• Charitable contributions (IRS Form 8283)
• IRA conversions or retirement account transactions (Typicall a conversion from a traditional to a Roth IRA)
• Buy / sell agreements
• SBA Loans
• Divorce or shareholder disputes
• Mergers, acquisitions, or recapitalizations
• Issuance of shares

What information is needed to perform a valuation?

While requirements vary, most engagements require historical financial statements, tax returns, ownership information, governing agreements, and an understanding of operations and future expectations.

We provide a detailed document request at the start of each assignment so clients and advisors know exactly what will be needed.

What is Fair Market Value in a business valuation?

For many tax-related matters, Fair Market Value is the applicable standard. It generally represents the price at which property would change hands between a hypothetical willing buyer and seller, with neither under compulsion and both having reasonable knowledge of the relevant facts.

What is a Discount for Lack of Control (DLOC)?

A Discount for Lack of Control reflects the reduced influence associated with owning a minority interest in a company. Non-controlling owners typically cannot direct management decisions, set compensation, declare distributions, or determine exit timing.

Because of these limitations, minority interests are often worth less on a per-unit basis than controlling positions.

What is a Discount for Lack of Marketability (DLOM)?

A Discount for Lack of Marketability recognizes that privately held ownership interests are not easily converted into cash. Unlike publicly traded securities, there may be transfer restrictions, limited buyers, and uncertain timing for liquidity.

This reduced marketability can materially impact value depending on the facts and circumstances.

Do DLOC and DLOM always apply?

Not automatically. The applicability and magnitude of any discount depend on the specific ownership rights, governing documents, and economic realities of the interest being valued.

A professional analysis is required to determine what, if any, adjustments are appropriate.

How are business valuations used for gifting shares?

When ownership interests are transferred to family members, heirs, or trusts, a valuation is typically required to determine the reportable value of the gift for federal gift tax purposes.

The value conclusion becomes the foundation for calculating how much of the donor’s lifetime exemption is used, whether gift tax is owed, and how future appreciation will be treated inside the recipient’s estate structure. Even small differences in value can have significant long-term tax implications.

These assignments often involve minority or non-controlling interests, which means the appraiser must carefully analyze the specific rights transferred. Factors such as voting control, distribution authority, transfer restrictions, buy-sell provisions, and expected liquidity can materially influence value.

A properly prepared appraisal helps:

• Support the amount reported on gift tax filings
• Document the economic characteristics of the interest transferred
• Reduce the risk of disputes or adjustments upon IRS review
• Provide advisors with defensible inputs for broader estate planning strategies

Because these valuations may be examined years after the transfer occurs, documentation quality, methodology, and professional independence are critical.

Why is a valuation required for IRS Form 8283?

When a taxpayer donates a non-cash ownership interest in a business, the IRS generally requires a qualified appraisal to support the deduction claimed. The valuation must define the specific interest contributed, analyze the rights and restrictions attached to that interest, and explain how market participants would price it.

This documentation supports the amount reported on Form 8283 and helps establish that the deduction is reasonable if later reviewed. Because charitable deductions can attract scrutiny, taxpayers and their advisors typically rely on a formal appraisal prepared by an independent professional rather than informal estimates.

Do you do valuations of S Corps for donations? 

Yes! AppraiseItNow performs certified business appraisals of S Corps for tax-deductible gifts and filing of IRS Form 8283.

Why are business valuations needed for IRA conversions?

Retirement accounts that hold private company interests or other alternative assets usually lack a quoted market price. When an investor converts or distributes those assets, a defensible value is needed to determine the taxable amount and satisfy custodian reporting requirements.

The appraisal provides support for the fair market value at the effective date and helps advisors document the transaction in case of future review. Without an independent valuation, it can be difficult to demonstrate that the reported income or transfer amount was calculated appropriately.

How long does a business valuation take?

Most engagements are completed within 2-3 weeks, depending on complexity, responsiveness, and the amount of analysis required. Matters involving multiple entities or heightened regulatory scrutiny may require additional time.

Are your business valuations USPAP compliant?

Yes! When required, assignments are prepared in accordance with the Uniform Standards of Professional Appraisal Practice (USPAP). Reports clearly describe the scope of work, assumptions, methodologies, and supporting data.

Who relies on AppraiseItNow's valuations?

Our reports are commonly relied upon by:

• CPAs and tax advisors
• Estate planning attorneys
• Trustees and fiduciaries
• Private equity and investment professionals
• Courts and regulatory bodies

Additionally, our reports are frequently used for IRS tax reporting and prepared with the utmost level of diligence for this purpose.

How do I begin?

Contact us through our website, and we'll share next steps!