## Facts

- An individual donor owned all shares of a closely held corporation with a single class of stock.
- The donor made simultaneous gifts of 20% of the corporation’s shares to each of five children.
- After the transfers, each child held a 20% block, and the children collectively owned 100% of the corporation.
- The valuation question arose under federal gift tax rules requiring fair market value at the date of the gift.
- The ruling reconsidered and revoked a prior administrative position that generally denied minority discounts for intrafamily transfers when the family, in the aggregate, controlled the corporation.

## Issues

1. For gift-tax valuation under I.R.C. § 2512, must a transferred block of closely held stock be valued by considering “family control” created by aggregating related donees’ holdings?
2. May a minority-interest discount be considered for each transferred 20% block even though the donees, as a group, control the corporation?

## Decision

- The IRS concluded that each transferred 20% block should be valued as a minority interest for gift-tax purposes without regard to the family relationship among shareholders.
- The IRS stated it will not aggregate other family members’ shares with the transferred shares to treat the transfer as part of a controlling interest.
- The IRS revoked its prior ruling that had ordinarily disallowed minority discounts in comparable intrafamily transfer settings.

## Legal Principles

- Gift-tax value is determined as of the date of the gift and equals fair market value under the willing-buyer/willing-seller standard (I.R.C. § 2512; Treas. Reg. § 25.2512-1).
- For closely held stock lacking market quotations, the degree of control represented by the specific block being valued is a relevant factor (Treas. Reg. § 25.2512-2(f)).
- In valuing a minority block transferred to a family member, other family members’ holdings are not attributed to the transferred block to create deemed control.
- Minority-interest discounts are not barred solely because related donees, considered together, hold control of the corporation.

## Conclusion

The IRS determined that, for gift-tax valuation of closely held corporate stock, each transferred minority block must be valued on its own merits under the fair-market-value standard, without aggregating family members’ shares to impute corporate control, and it revoked prior guidance that had generally denied minority discounts in such intrafamily transfers.


Rev. Rul. 93-12, 1993-1 C.B. 202 (1993)