Revenue Ruling 59-60

Ruling that is the most significant source for the valuation of closely held corporation capital stock critical to the close corporation plan. This ruling defines the fair market value as “the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell, both parties having reasonable knowledge of the relevant facts.” The valuation of the shares of closely held corporations involves the comparison of “prices at which the stocks of companies engaged in the same or similar line of business are selling in a free and open market.” This ruling stipulates that the following factors must be carefully considered in such an evaluation: (1) intangible values such as goodwill; (2) financial ability to generate an ongoing dividend stream; (3) earnings capability; (4) type of business and its financial and market history; (5) economic outlook for the industry in which the business resides; (6) financial condition of the corporation as well as the book value of its stock; (7) size of the block of stock requiring a valuation; and (8) market value of stocks actively traded on an exchange or over-the-counter market of similar corporations engaged in similar lines of business.

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