Tansey Estate Planning

Protecting You and Your Loved Ones

Valuation Reduction

IRS Definition of Value of Property—The Willing Buyer-Willing Seller Test

The value of the property is the price at which such property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or sell, and both having a reasonable knowledge of relevant facts.

Imagine that you are a Willing Buyer. Ask yourself the following questions. After you answer the following questions for yourself, you will understand why there are valuation discounts.

Appraisers have been able to quantify the effect that lack of control, restrictions on transfer and minority interests have on the value of property—They reduce the value of the entity that has a lack of control, restrictions on transfer, and minority interests from the underlying value of the entity’s property.

For the IRS to respect the valuation reduction when transferring property to entities that provide lack of control, restrictions on transfer and minority interests, the transfers must have a non-tax reason for making these transfers. Also, if the transfers are made to family members, the IRS will not recognize any restrictions that are more restrictive than the default state law.

Some non-tax reasons are:

Structures that provide Valuation Reduction