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This completes my discussion of certain aspects of the fair market value standard governing tax-related valuations. Its foundation is Revenue Ruling 59-50, a six-page document downloadable free from many sources. My appraisal teachers strongly recommended rereading it often, and I have done that for 30 years, invariably gaining new insights each time I did so,
This Ruling has stood the test of time for 56 years, but one of its prescriptions, Section 7, entitled “Average of Factors,” is incorrect, and is ignored in practice. Section 7 states that:
“No useful purpose is served by taking an average of several factors (for example, book value, capitalized earnings, and capitalized dividends).”
Here, “factors” means indications of value resulting from using different valuation methods. The implication is that one must select a single best indication from them and ignore the others.
That makes no sense!
Appraisers routinely take averages of value indications, for many good reasons:
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