Business Valuation Blog | Understanding Buying / Selling a Company

Appraising Closed Companies for Tax Discharge and Dissolution

Posted by Business Valuation Specialists LLC on Apr 11, 2022 7:00:00 AM

Business Valuation Appraisal Business Closure IRS Discharge and Dissolution

In the aftermath of the pandemic and in consideration of continuing economic hardships for many businesses in highly affected industries, such as restaurants and entertainment venues, the reality is that a lot of companies did not survive. These unprecedented times saw a large increase of small business owners struggling to stay afloat in hopes of a turnaround that ultimately took too long to come about.

Despite short-term relief funding programs made available by federal and state governments, there has been a significant increase in small business closures beginning in mid-2020 and continuing to this day. One of the many obligations business owners are required to undertake when closing their company involves a formal discharge and dissolution filing with the IRS.

There are several filing forms involved and depending on the existing documentation, owners may need to engage with a certified business appraiser to independently declare a final value for tax purposes. Even though it is evident that little to no revenue is being generated from business operations, there likely remain certain assets and liabilities which need to be declared as part of these final steps.

As painful as it may be, a business appraiser will need to be engaged and review these documents as part of their work effort to establish a fair net value for the remaining tangible and intangible property. Essentially, the focus is on what remains of the business that can be resold as part of the closure.

In many cases, this would be tangible property only, such as real estate, buildings, machinery & equipment, and personal property. If these assets have recently been appraised or are reasonably depreciated and accounted for on the company books, the business appraiser can use this data to document under an Asset Approach to value. This approach will likely be the only one utilized given the lack of income and external market comps considered under more normal business valuation circumstances.

Other factors will be taken into consideration that pertain to the closure status which will hopefully soften the final blows that come with this process. Making the decision to close your small business for lack of profitability, or for any other reason, can be a heartbreaking experience, and as business appraisers, we will do all we can to facilitate this process for small business owners during these trying times.

Tags: business valuations, business appraisers, Appraisal for Tax Purposes, closed business