Business Valuation

The Statute of Limitations for Gift Revaluation Won't Start Without Adequate Disclosure

by Francis A. Humphries, CPA/ABV,  CVA

There is a three-year statute of limitations for the IRS revaluation of a gift...BUT...the time will not begin to run until the gift is adequately disclosed in a gift tax return.  A business valuation report by a qualified appraiser, containing information specified by IRS regulations, satisfies the adequate disclosure requirements.

If you wonder why we ask all those questions, take a look at this. It's our checklist to ensure that your valuation report meets the test of adequate disclosure. Every single question must be answered affirmatively to start the running of the statute.

Checklist for Adequate Disclosure of Gift Transfers in Business Valuation Reports

Does the valuation report disclose the following:

The identity of, and relationship between, the transferor and each transferee²?

Any position taken that is contrary to any proposed, temporary or final Treasury regulations or revenue rulings published at the time of transfer?

The date of transfer?

The valuation date?

The purpose of the valuation?

A description of the property transferred?

A description of the valuation process employed?

A description of the assumptions, hypothetical conditions, and any limiting conditions and restrictions on the transferred property that affect the analyses, opinions, and conclusions?

The information considered in determining the appraised value, including all financial data used in determining the value of an ownership interest in a business that is sufficiently detailed so that another person can replicate the process and arrive at the appraised value?

The valuation procedures followed, and the reasoning that supports the analyses, opinions, and conclusions?

The valuation method utilized, the rationale for the valuation method, and the procedure used in determining the fair market value of the asset transferred?

The specific basis for the valuation, such as specific comparable sales or transactions, sales of similar interests, asset-based approaches, merger-acquisition transactions, etc.?

The valuer's background, experience, education, and membership in professional organizations that qualify him/her to make appraisals of the type of property being valued?

Does the valuer meet the following independence requirements?:

The appraiser is not the donor or the donee of the property or a member of the family¹ of the donor or donee, or any person employed by the donor, the donee, or a member of the family of either.

Notes:
¹Member of the family means (donor or donee=d), an ancestor of d, the spouse of d, a lineal descendant of d, or of d's spouse, or of a parent of d, the spouse of any lineal descendant described above, including a legally adopted child.

²If the property is transferred in trust, the trust's tax identification number and either a brief description of the trust's terms or a copy of the trust instrument should be included in or attached to the gift tax return.

We take no shortcuts when your peace of mind is at stake. Our full-time, experienced business valuation professionals work diligently to protect your interests.