Revenue Ruling 59-60 on valuing a closely held company
Revenue Ruling 59-60 is an estate- and gift-tax ruling about closely held stock.
What the ruling says
Revenue Ruling 59-60 does not provide a sale-price formula. It says closely held stock valuation is a question of fact, lists eight fundamental factors, and calls for comparative balance sheets and preferably five or more years of detailed profit-and-loss statements. Its conclusions are tied to facts available at the valuation date.
The ruling's legal scope is federal estate and gift tax, so a sale-planning analysis needs its own purpose, evidence, and professional judgment. 1
On this page 6 sections
Read the ruling before the summary
Revenue Ruling 59-60 says there is no generally applicable formula for valuing closely held stock. It directs the appraiser to consider all relevant facts, lists eight fundamental factors, asks for comparative financial history, and limits the analysis to facts available at the valuation date. The ruling addresses federal estate and gift tax. 1
The selected passage below comes from Appendix A of an IRS valuation job aid. The job aid says it is not an official IRS position, while Appendix A reproduces the ruling. The excerpt includes sections 3.01 through 3.03 and the part of section 4.01 that states the eight factors, discusses an owner-manager, and describes the financial statements to obtain. 1
Selected text from Revenue Ruling 59-60
The spelling, numbering, and period language are retained from the reproduced ruling. The excerpt is presented for its federal estate- and gift-tax context.
Read the archived passage1,070 words
SEC. 3. APPROACH TO VALUATION.
.01 A determination of fair market value, being a question of fact, will depend upon the circumstances in each case. No formula can be devised that will be generally applicable to the multitude of different valuation issues arising in estate and gift tax cases. Often, an appraiser will find wide differences of opinion as to the fair market value of a particular stock. In resolving such differences, he should maintain a reasonable attitude in recognition of the fact that valuation is not an exact science. A sound valuation will be based upon all the relevant facts, but the elements of common sense, informed judgment and reasonableness must enter into the process of weighing those facts and determining their aggregate significance.
.02 The fair market value of specific shares of stock will vary as general economic conditions change from “normal” to “boom” or “depression,” that is, according to the degree of optimism or pessimism with which the investing public regards the future at the required date of appraisal. Uncertainty as to the stability or continuity of the future income from a property decreases its value by increasing the risk of loss of earnings and value in the future. The value of shares of stock of a company with very uncertain future prospects is highly speculative. The appraiser must exercise his judgment as to the degree of risk attaching to the business of the corporation which issued the stock, but that judgment must be related to all of the other factors affecting value.
.03 Valuation of securities is, in essence, a prophesy as to the future and must be based on facts available at the required date of appraisal.
SEC. 4. FACTORS TO CONSIDER.
.01 It is advisable to emphasize that in the valuation of the stock of closely held corporations or the stock of corporations where market quotations are either lacking or too scarce to be recognized, all available financial data, as well as all relevant factors affecting the fair market value, should be considered. The following factors, although not all-inclusive are fundamental and require careful analysis in each case:
(a) The nature of the business and the history of the enterprise from its inception.
(b) The economic outlook in general and the condition and outlook of the specific industry in particular.
(c) The book value of the stock and the financial condition of the business.
(d) The earning capacity of the company.
(e) The dividend-paying capacity.
(f) Whether or not the enterprise has goodwill or other intangible value.
(g) Sales of the stock and the size of the block of stock to be valued.
(h) 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.
The loss of the manager of a so-called “one-man” business may have a depressing effect upon the value of the stock of such business, particularly if there is a lack of trained personnel capable of succeeding to the management of the enterprise. In valuing the stock of this type of business, therefore, the effect of the loss of the manager on the future expectancy of the business, and the absence of management-succession potentialities are pertinent factors to be taken into consideration. On the other hand, there may be factors which offset, in whole or in part, the loss of the manager’s services. For instance, the nature of the business and of its assets may be such that they will not be impaired by the loss of the manager. Furthermore, the loss may be adequately covered by life insurance, or competent management might be employed on the basis of the consideration paid for the former manager’s services. These, or other offsetting factors, if found to exist, should be carefully weighed against the loss of the manager’s services in valuing the stock of the enterprise.
Balance sheets should be obtained, preferably in the form of comparative annual statements for two or more years immediately preceding the date of appraisal, together with a balance sheet at the end of the month preceding that date, if corporate accounting will permit. Any balance sheet descriptions that are not self-explanatory, and balance sheet items comprehending diverse assets or liabilities, should be clarified in essential detail by supporting supplemental schedules. These statements usually will disclose to the appraiser (1) liquid position (ratio of current assets to current liabilities); (2) gross and net book value of principal classes of fixed assets; (3) working capital; (4) long-term indebtedness; (5) capital structure; and (6) net worth.
Detailed profit-and-loss statements should be obtained and considered for a representative period immediately prior to the required date of appraisal, preferably five or more years. Such statements should show (1) gross income by principal items; (2) principal deductions from gross income including major prior items of operating expenses, interest and other expense on each item of long-term debt, depreciation and depletion if such deductions are made, officers’ salaries, in total if they appear to be reasonable or in detail if they seem to be excessive, contributions (whether or not deductible for tax purposes) that the nature of its business and its community position require the corporation to make, and taxes by principal items, including income and excess profits taxes; (3) net income available for dividends; (4) rates and amounts of dividends paid on each class of stock; (5) remaining amount carried to surplus; and (6) adjustments to, and reconciliation with, surplus as stated on the balance sheet.
With profit and loss statements of this character available, the appraiser should be able to separate recurrent from nonrecurring items of income and expense, to distinguish between operating income and investment income, and to ascertain whether or not any line of business in which the company is engaged is operated consistently at a loss and might be abandoned with benefit to the company. The percentage of earnings retained for business expansion should be noted when dividend-paying capacity is considered. Potential future income is a major factor in many valuations of closely-held stocks, and all information concerning past income which will be helpful in predicting the future should be secured. Prior earnings records usually are the most reliable guide as to the future expectancy, but resort to arbitrary five-or-ten-year averages without regard to current trends or future prospects will not produce a realistic valuation.
Decision table
Swipe to compare| Source request | What to retrieve | Boundary |
|---|---|---|
| Valuation date | Date-labeled statements, forecasts, comparables, and operating facts | Later results were not automatically known at the valuation date |
| Financial condition | Comparative balance sheets and supplemental schedules | Book captions alone may combine unlike assets or liabilities |
| Earning capacity | Preferably five or more years of detailed profit-and-loss statements | An arbitrary historical average can ignore current trends and prospects |
| Owner dependence | Successors, duties, insurance, assets, and replacement-management cost | The loss of one manager may be offset by other facts |
Records and owner dependence
Retrieve comparative annual balance sheets for two or more years, the preceding month's balance sheet when available, and supplemental schedules for captions that combine unlike assets or liabilities. 1 For related valuation records and owner questions, return to the private-company valuation reference desk.
For the income statement, the ruling says “preferably five or more years.” Its list is unusually specific: gross income, major operating expenses, interest on each item of long-term debt, depreciation, officers' salaries, contributions, taxes, dividends, and changes in surplus. Keep those years in comparable columns. Then mark recurring and nonrecurring items and separate operating income from investment income. 1
The “one-man” business passage does not end with the owner's job title. It asks whether trained personnel can succeed the manager, whether the assets would be impaired, whether insurance covers the loss, and whether competent management can be hired for what the former manager was paid. Those facts can point in different directions.
Write down the duties that still sit with the owner, the person who can assume each duty, the authority that person already has, and the expected replacement cost. 1
- Comparative annual balance sheets for two or more years
- A balance sheet close to the valuation date when available
- Supporting schedules for combined asset or liability captions
- Preferably five or more years of detailed profit-and-loss statements
- Successor, insurance, asset, and replacement-management facts
The valuation date
Section 3.03 uses facts available at the required date of appraisal. A later result may explain what happened, but it was not automatically known on the valuation date. Date each statement and forecast, record when a comparable transaction became known, and keep later operating results in a separate column. Otherwise a later fact can slip into an earlier conclusion without anyone noticing the change. 1
For a possible sale, write the purpose of the work at the top of the file and choose a valuation method from evidence available for that assignment. When the purpose and date are clear, compare the principal valuation approaches.
What this source does not decide
Revenue Ruling 59-60 concerns federal estate- and gift-tax valuation of closely held stock. The surrounding IRS job aid focuses on non-controlling interests in electing S corporations and says the job aid itself is not an official IRS position. The separate IRS valuation page helps readers retrieve federal materials. Neither source supplies a transaction multiple, a negotiated price, or the set of facts needed for a particular company sale. 12
Use the ruling for the factors and records it names. A company-specific conclusion requires current facts and professional judgment. Before choosing a method for sale planning, define what a preliminary range can answerbefore choosing a method. If the company facts are ready, request a confidential valuation review.
Questions owners ask
01Does Revenue Ruling 59-60 set a business sale price?
No. The ruling addresses federal estate- and gift-tax valuation of closely held stock, says no generally applicable formula can cover every case, and provides neither a transaction multiple nor a sale-price conclusion. 1
02Which financial records does Revenue Ruling 59-60 request?
The selected passage asks for comparative annual balance sheets for two or more years, a balance sheet near the valuation date when accounting permits, supplemental schedules for unclear captions, and preferably five or more years of detailed profit-and-loss statements. 1
03How does Revenue Ruling 59-60 treat an owner-run business?
The ruling says losing the manager may depress value when trained successors are lacking, then asks the appraiser to weigh the assets, life insurance, and the availability and cost of competent replacement management. 1
Sources and limits
- Internal Revenue Service — S Corporation Valuation Job Aid for IRS Valuation Professionals, Appendix A — Revenue Ruling 59-60
Exact ruling text, valuation-date boundary, eight factors, requested financial records, and owner-manager discussion. Limit: The job aid says it is not an official IRS position; the reproduced ruling addresses federal estate and gift tax and supplies no sale price. Accessed 2026-07-25.
- Internal Revenue Service — Valuation of assets
Current IRS valuation-resource context and retrieval path for federal valuation materials. Limit: The page does not convert the ruling into a transaction price, market multiple, or seller-specific conclusion. Accessed 2026-07-25.
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