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Fair Market Value Definition-Business Valuation

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(The following is an excerpt from The Executive's Guide to Business Valuation by business valuation expert and M&A i-banker Justin Kuczmarski, MBA, CPA, CVA, CIRA, ABV.)

To view this free IACAM executive guide, please click the blue link above.

Fair Market Value

The “mother of all definitions”, fair market value is by far the most commonly used value definition/standard. This universality is driven by how fair market value is mandatory in all business appraisals for federal tax purposes. FMV’s compulsory use in private business valuation for tax compliance, in addition to the established familiarity courts have with the FMV definition, have established fair market value as the default value standard.

IRS Revenue Ruling 59-60 characterizes the arm’s length definition of fair market value as follows:

The amount at which the property would change hands between a willing buyer and willing seller, when the former is not under any compulsion to buy, and the latter is not under any compulsion to sell, both parties having reasonable knowledge of relevant facts.

 

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