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Business Valuation and Federal Taxes: Procedure, Law and Perspective, 2nd Edition by Shannon P. Pratt, David Laro

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Chapter 2

Subsequent Events

Summary

Generally, value is determined as of a specific date, and later events should not affect the value of property as of the valuation date. This rule is subject to some notable exceptions.

Subsequent events may be relevant to show what knowledge the hypothetical buyer and seller could reasonably have had as of the valuation date. Some courts admit evidence of subsequent events only if it meets the standard test of relevancy. Courts may admit such evidence if it is probative of value.

Some courts will examine a subsequent sale of the property to establish its presumed fair market value, adjusting the sale price for changes between the date of valuation and the date of sale.

Some authorities use subsequent sales as evidence of value rather than as something that affects value.

Key Question

Should events occurring subsequent to the valuation date affect the value of the property as of the valuation date? This question, while seemingly easy to answer, has produced a disconcerting array of responses in the many courts that have addressed the issue.

Valuation Date

We start with the obvious. To value a business interest, we must pick a point in time at which the valuation is to be performed. Sometimes, this date is simply the client's fiscal year-end or is established by mutual agreement. In an employee stock ownership plan, the valuation date is set forth in the plan and is usually the last day of that plan's fiscal year. In a merger, the valuation date ...

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