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ARXIS - Litigation Consulting
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June 2021

Recent Case:

Valuation for Portion of Business Ownership
to be Donated

Type of Matter:

A non-control owner of a privately-held business wanted to donate a portion of her shares to a charitable organization. Time was short since there were several potential buyers approaching the business and it appeared that the business might sell pretty quickly.


Depending on the size of the donation, the IRS requires a qualified appraisal of the common stock to substantiate the deduction. Large donations require that the valuation report be submitted with the tax return. The standard of value for tax valuations is "Fair Market Value." IRS Revenue Ruling 59-60, Section 2.02 defines Fair Market Value as follows:

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 relevant facts. Court decisions frequently state in addition that the hypothetical buyer and seller are assumed to be able, as well as willing, to trade and to be well informed about the property and concerning the market for such property.

Arxis Financial work:

Two issues had to be addressed as the project developed. One was the premise of value. In most FMV valuations, the premise is "going concern" meaning that the business is assumed to continue in its present form in perpetuity. However, as the work progressed it became obvious that the business was likely to sell pretty quickly. Therefore, the valuation of the enterprise (a necessary first step) was prepared on the going concern premise and the non-control interest being donated was valued using a liquidation premise since the owner was going to be bought out and the interest would no longer exist. The practical implication of this was there were no discounts taken for lack of control and the consideration of marketability discounts was very slight. Both decisions are unusual when valuing a small minority interest in a closely-held business but perfectly appropriate given the circumstances.

The second issue was also posed by the imminent sale. There were several written letters of interest from potential buyers that included details of proposed terms and consideration. To the extent the offers are arms-length and serious they are a reasonable and even persuasive estimate of the Fair Market Value of a business. Here, because of the probability of a transaction very soon after the donation there was almost no choice but to use them to value the enterprise. The complexity arose due to IRS case law and regulations that state that personal goodwill cannot be donated. To the extent that consideration for the sale included covenants not to compete, earnouts, and compensation contracts for existing shareholders the prices considered to value the business must be allocated between personal and business goodwill. Using the assumption that the sale would take place and that the letters of interest reflected what the terms of the deal would eventually be, analysis and allocations of selling price to compensation for personal goodwill were excluded from the value conclusion.


After determining the above fundamentals for the valuation of the enterprise, Arxis completed the valuation on a timely basis and within budget. The report was accepted without change and financial and tax reporting of the transaction was prepared based on the Arxis valuation report.

Service Profile:

Litigation Consulting Services for Wrongful Death


Whether for plaintiff or defense counsel, wrongful death matters hold significant financial consequences. Loss calculations can easily reach into the multi-million dollar range based on an individual's earnings, fringe benefits and inheritance, as well as damages for mental anguish or pain and suffering of the survivors, and possible punitive damages. Hiring the right expert in such matters is therefore an imperative.

Arxis is thoroughly equipped to offer extensive litigation consulting services in wrongful death cases. We provide an independent analysis of damages, using current market data, national estimates and case specific facts. We also provide analysis of opposing expert's reports, especially when the calculated loss appears to be overstated. Our experts review the underlying assumptions and methods, verify accuracy of their calculations, and compare these to professional standards. We can also provide questions for cross examination of the opposing damages expert. Our expert analysis can often provide a basis for negotiating a reasonable settlement.

Our experts are readily available to attest to their findings in depositions and trial at local, state and federal court levels as well as mediation and arbitration. Clients are pleased with Arxis' abilities to clearly, persuasively, and accurately present economic and financial evidence and opinions.

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Chris Hamilton, CPA, CFE, CVA
Chris Hamilton, CPA, CFE, CVA
(805) 342-0749
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