Revenue Ruling 59-60

Revenue Ruling 59-60, promulgated in 1959, addressed a desire by the Internal Revenue Service to set forth fundamental issues appraisers should consider when valuing a privately-owned business for estate and gift tax purposes. Rev. Rul. 59-60 is not a "how to"; rather it is an excellent discussion of eight broad factors the appraiser should take into account to reach a value conclusion. Those factors include:

• the nature of the business and the history of the enterprise from its inception;
• the economic outlook in general and the condition and outlook of the specific industry in particular;
• the book value of the stock and the financial condition of the business;
• the earning capacity of the business;
• the dividend-paying capacity;
• whether or not the enterprise has goodwill or other intangible value;
• sales of the stock and size of the block of stock to be valued; and
• the market price of stocks of corporations engaged in the same or a similar line of business having their stocks actively traded in a free and open market, either on an exchange or over-the-counter.

Since 1959 the business valuation industry has evolved significantly. Today valuation techniques including arbitrage pricing theory, capital asset pricing models, discounted cash flow and many other approaches unknown back then. So 59-60 is not the be-all and end-all, but it remains a compilation of sound wisdom as well as the legal framework.