The Importance of Valuing the Business for Estate Tax Purposes

Establishing the business value for estate tax purposes is important because the interest owned by a decedent is one of the most heavily litigated and intensely disputed issues in determining the estate tax liability of a deceased business owner.

The IRS often takes the position that the actual value of a closely-held business owned by a deceased owner is significantly greater than the value of the business reported by the estate, resulting in substantially higher estate taxes owed by the estate. Worst case scenario is that the IRS successfully challenges the buy-out price. The estate then finds itself in the undesirable position of receiving a contractual agreement price for the business interest that is lower than the valuation upon which it pays estate taxes.