9025 / What general principles govern small business valuation for estate and gift tax purposes?
The fair market value of any interest in an “unmarketable business,” whether it is structured as a partnership, corporation, limited liability company, or a proprietorship, is the amount that a willing buyer, whether an individual or a corporation, would pay for the interest to a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts. The net value is determined on the basis of all relevant factors, including the following:
(1) The value of all the assets of the business, tangible and intangible, including goodwill (see Q 9030 and Q 9031);
(2) The demonstrated earning capacity of the business; and
(3) The other factors set forth in the regulations1 relating to valuation of corporate stock, to the extent applicable.