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I'd like to hug every judge who had a hand in this classic Tax Court decision: [Estate of Davis, 110 TC 35, 6/30/98]. Instead of giving all the dull facts and all the technical stuff in the case, this article deals with what the result means to you, the average business owner who someday must value your business for tax purposes.

You (Joe) operate your family business (Success Co.) as a corporation. The assets of Success Co. include a number of appreciated assets; for example, investments in stocks, land and buildings. Also many assets subject to deprecation — mostly equipment — are on the books for much less than their current value. Now suppose Success Co. is correctly valued at $5 million. The value of the various assets that Success Co. owes is $4 million, but has only a book value of $3 million. So, if Success Co. were to sell the assets or actually liquidated (neither Joe nor Success Co. intend to sell the assets or liquidate), there would be a $1 million profit. Say the tax (state and federal) on the profit would be $400,000. The question that faced the court was could the value of the corporation be reduced by $400,000 to $4.6 million? "Yes," said the court, turning thumbs down on the IRS's claim to ignore this built-in-gains discount (actually the potential tax due for an asset sale or corporate liquidation).

Applause! Applause! for the court. Think about it: That discount of $400,000 could save Joe about $210,000 in estate taxes.

As a practical matter, this case allows you to take three distinct valuation discounts: (1) a discount for lack of marketability; (2) discount for built-in gains of assets, even if you don't intend to sell them or liquidate (technically a part of the marketability discount); and (3) a discount for minority interest if you are transferring 50 percent or less of your stock to one person (for example, Joe Gives 30 percent of his Success Co. stock to each of his two children). After these three discounts, a $5 million company may only be worth in the $3 million range for tax purposes. Or a $2 million discount, yielding estate tax savings of about $1.1 million. Truly a great victory!

Now a personal puff of pride for our office, which has a large valuation department. We have been taking similar discounts for built-in gains for years.

The right value of your business, whether transferring to your kids, for estate planning or for other purposes, is one of the most important tax-impact considerations in the law.

Do you have a business valuation problem — particularly if you want to transfer your business to another family member — that is driving you up the proverbial "tax wall?" Then you are welcome to call me (847-674-5295). Let's chat about your exact situation.

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Irv Blackman is a certified public accountant who lives part-time on Marco Island and specializes in estate planning, business succession and asset protection. E-mail him at wealthy@blackmankallick.com or call 417-9732. His Web site is http://www.taxsecretsofthewealthy.com.