How is value defined for Section 318 purposes?

[Guest HelpMeHelpYou]

Neither Code Section 318 nor the its regulations defines the term value. How is value defined for purposes of Section 318? I would assume it means FMV, but that is of little value when I am potentially looking at two classes of stock and only one of them being publicly traded.

[Belgarath]

Good luck! S. Derrin Watson, in "Who's the Employer" (my bible for CG/ASG) states that "Determining the value of stock in closely held corporations is one of the thorniest tasks of estate tax and divorce practitioners." He goes on to state that for CG issues, such considerations as voting rights, dividend rights, liquidation preferences, and potential for appreciation come into play. He gives a couple of basic examples - one for instance:

"Consider a corporation with both common and voting preferred stock outstanding. Assume that upon liquidation the preferred stockholders are entitled to the first $100,000 in distributions. If the corporation is only worth $50,000 at present, almost all of the value will be in preferred stock."

And, he mentions other convolutions as well. If questionable, might be very wise to request an IRS ruling on CG status.

Yuck...