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A Reviewer's Handbook to Business Valuation: Practical Guidance to the Use and Abuse of a Business Appraisal by Timothy R. Lee, L. Paul Hood Jr.

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Chapter 16

Internal Revenue Service (IRS) Business Valuation Standards

The latest version of the IRS Business Valuation Standards were issued on July 27, 2006.1 These standards are set forth in the Internal Revenue Manual at IRM 4.48.4.

IRM 4.48.4.1—Introduction

These standards “provide guidelines applicable to all IRS personnel engaged in valuation practice (herein referred to as ‘valuators’) relating to the development, resolution, and reporting of issues involving business valuations and similar valuation issues.”2 Valuators have to justify departure from these standards.3

IRM 4.48.2—Development Guidelines

Valuators are advised to document all aspects of planning, identifying critical factors, documenting specific information, and analyzing that information in the workpapers.4 The standards also suggest that “[a] review appraisal may be the best approach to the assignment.”5

IRS valuators are supposed to “define the assignment and determine the scope of work necessary by identifying the following:

  • Property to be valued
  • Interest to be valued
  • Effective valuation date
  • Purpose of valuation
  • Use of valuation
  • Statement of value
  • Standard and definition of value
  • Assumptions
  • Limiting conditions
  • Scope limitations
  • Restrictions, agreements, and other factors that may influence value
  • Sources of information6

IRS valuators “should analyze the relevant information necessary to accomplish the assignment including:

  • The nature of the business and the history of the enterprise from its inception. ...

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