Valuations of assets owned and/or transferred by or between controlled taxpayers (within the meaning of Treasury Regulation section 1.482-1(i)(5)) may present substantive issues that are not addressed in these guidelines. See IRM 4.61.3, Development of IRC 482 Cases, which provides general guidelines in the development of IRC 482 cases.

See IRM 4.48.1.1.2, Overview of Engineering Program, Authority.

This document incorporates by reference, the ethical and conduct provisions, contained in the Office of Government Ethics (OGE) Standards of Ethical Conduct, applicable to all IRS employees.

See IRM 4.48.1.1.3, Overview of Engineering Program, Roles and Responsibilities.

See IRM 4.48.1.1.4, Overview of Engineering Program, Program Objectives and Review.

The Engineering website is https://irssource.web.irs.gov/LBI/SitePages/ENG.aspx.

Other IRMs in this chapter include:

Appraisers will adequately plan the valuation assignment. Their managers will supervise the staff involved in the valuation process.

Quality planning is a continual process throughout the valuation assignment.

Refer to the Engineer web page https://irssource.web.irs.gov/LBI/SitePages/ENG.aspx for available valuation resources.

In developing a valuation conclusion, appraisers should define the assignment and determine the scope of work necessary by identifying the following:

In developing a valuation conclusion, appraisers should analyze the relevant information necessary to accomplish the assignment including:

The three generally accepted valuation approaches are the asset-based approach, the market approach and the income approach. Consideration should be given to all three approaches. Professional judgment should be used to select the approach(es) ultimately used and the method(s) within such approach(es) that best indicate the value of the business interest.

Historical financial statements should, if necessary, be analyzed and, if necessary, adjusted to reflect the appropriate asset value, income, cash flows and/or benefit stream, as applicable, to be consistent with the valuation methodologies selected by the appraiser.

The appraiser should select the appropriate benefit stream, such as pre-tax or after-tax income and/or cash flows, and select appropriate discount rates, capitalization rates or multiples consistent with the benefit stream selected within the relevant valuation methodology.

The appraiser will determine an appropriate discount and/or capitalization rate after taking into consideration all relevant factors such as:

As appropriate for the assignment, and if not considered in the process of determining and weighing the indications of value provided by other procedures, the appraiser should separately consider the following factors in reaching a final conclusion of value:

Workpapers should document the steps taken, techniques used, and provide the evidence to support the facts and conclusions in the final report.

Appraisers will maintain a detailed case activity record (Form 9984, Examining Officer's Activity Record) which is prepared consistent with IRM 4.48.1.4, Workpapers.

The case activity record, along with the supporting workpapers, should justify that the time spent is commensurate with work performed.

In reviewing a business valuation and reporting the results of that review, an appraiser should form an opinion as to the adequacy and appropriateness of the report being reviewed and should clearly disclose the scope of work of the review process undertaken.

In reviewing a business valuation, an appraiser should:

In the event of a disagreement with the report’s factual representations, underlying assumptions, methodology, or conclusions, an appraiser should conduct additional fact-finding, research, and/or analyses necessary to arrive at a credible value conclusion.

The objective, if possible, is to resolve the valuation issue as early in the examination as possible.

The appraiser will work in concert with the internal customer and taxpayer to attempt to resolve all outstanding issues.

Once the appraiser has all the information to be considered in resolving the issue, the appraiser will use his/her professional judgment in considering this information to arrive at a conclusion.

Appraisers may not have all the information they would like to have to definitively resolve an issue. Appraisers, therefore, should decide when they have substantially enough information to make a proper determination.

Appraisers will employ independent and objective judgment in reaching conclusions and will decide all matters on their merits, free from bias, advocacy, and conflicts of interest.

The primary objective of an appraisal report is to provide convincing and compelling support for the conclusions reached.

Appraisal reports should contain all the information necessary to allow a clear understanding of the valuation analyses and demonstrate how the conclusions were reached.

The extent and content of the report to be prepared depends on the needs of each customer.

Appraisal reports should clearly communicate the results and identify the information relied upon in the valuation process. The appraisal report should effectively communicate the methodology and reasoning, as well as identify the supporting documentation.

Subject to the type of report being written, appraisal reports should generally contain sufficient information relating to the items in IRM 4.48.4.2.2, Identifying, and IRM 4.48.4.2.3, Analyzing, to ensure consistency and quality.

Reports written with respect to IRM 4.48.4.2.5, Reviewing, shall contain, at a minimum, information relating to those items in the previously referenced subsections, Identifying and Analyzing, necessary to support the revised assumptions, analyses, and/or conclusions of the appraiser.

Each written appraisal report should contain a signed statement that is similar in content to the following:

To the best of my knowledge and belief:

Certification may be amended if appraisers are required to comply with professional designation and or state license requirement.