In a win for taxpayers, the U.S. Tax Court in 2023 upheld an appraisal method, previously opposed by IRS, that can lower the valuation of a pass-through entity such as an S corporation, limited liability company, or partnership significantly.

A lower valuation of a business organized as a pass-through entity is particularly meaningful to the owners because the business is often their largest asset. The lower valuation enables them to transfer a larger share of their ownership interest tax-free to future generations using the gift and estate tax exemption, which in 2024 is $13.61 million in lifetime tax-free transfers.

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