What does Revenue Ruling 93-12 imply regarding the valuation of gifts?

Revenue Ruling 93-12 provides guidance on the valuation of gifts for gift tax purposes. It specifically acknowledges that discounts for marketability and minority interests can be applied in the context of valuing interests in a closely-held business or other illiquid assets. This reflects the recognition that an interest in such entities may not have the same value as a comparable interest that is freely tradable on the open market due to the lack of marketability and the effect of minority ownership.

In practice, this means that when valuing gifts, practitioners can legitimately consider how factors like the size of the ownership interest and the lack of marketability influence the overall value of the gift. By applying discounts, appraisers can arrive at a more accurate representation of the value that the property would likely bring in a real-world transaction, which is especially pertinent when dealing with privately held company shares or business interests transferred as gifts.

This emphasis on applying marketability and minority interest discounts is critical for ensuring that valuations provide a realistic reflection of the economic realities faced by the owner and recipient of the gifted asset.