Business valuations subject to SSVS No. 1 are valuations of businesses, business ownership interests, securities, or intangible assets (collectively referred to in the SSVS as “business valuations”) performed by CPAs for a variety of purposes, including: a. Transactions (or potential transactions), such as acquisitions, mergers, leveraged buyouts, initial public offerings, employee stock ownership plans and other share based plans, partner and shareholder buy-ins or buyouts, and stock redemptions. b. Litigation (or pending litigation) relating to matters such as marital dissolution, bankruptcy, contractual disputes, owner disputes, dissenting shareholder and minority ownership oppression cases, and employment and intellectual property disputes. c. Compliance-oriented engagements, including (1) financial reporting and (2) tax matters, such as corporate reorganizations; S corporation conversions; income, estate, and gift tax compliance; purchase price allocations; and charitable contributions. d. Planning-oriented engagements for income tax, estate tax, gift tax, mergers and acquisitions, and personal financial planning.
As used herein, “CPA” refers to an AICPA member or a nonmember CPA practicing in a state that has adopted SSVS No. 1.
General Exceptions:
1. Attest Engagement. SSVS No.1 is not applicable to a CPA who participates in estimating the value of a subject interest as part of performing an attest engagement defined by Rule 101 of the
AICPA Code of Professional Conduct (for example, as part of an audit, review, or compilation engagement).
2. Valuation Approaches and Methods Not Applied. SSVS No.1 is not applicable when the value of a subject interest is provided to the CPA by the client or a third party, and the CPA does not apply valuation approaches and methods.
3. Internal Use Assignment to Employee. SSVS No.1 is not applicable to internal use assignment from an employer to an employee CPA not in the practice of public accounting, as that term is defined in the AICPA Code of Professional Conduct (AICPA, Professional Standards , vol. 2, ET sec. 92.25).

4. Determination of Economic Damages. SSVS No.1 is not applicable to engagements that are exclusively for the purpose of determining economic damages (for example, lost profits) unless those determinations include an engagement to estimate value.
5. Mechanical Computations. SSVS No.1 is not applicable to mechanical computations that do not rise to the level of an engagement to estimate value; that is, when the CPA does not apply valuation approaches and methods and does not use professional judgment.
6. Application Not Practical or Reasonable. SSVS No.1 is not applicable when it is not practical or not reasonable for the CPA to obtain or use relevant information; as a result, the CPA is unable to apply valuation approaches and methods.
Conflicting Authority Exception:
If any part of SSVS No.1 differs from published governmental, judicial, or accounting authority, or such authority specifies valuation development procedures or valuation reporting procedures, then the valuation analyst should follow the applicable published authority or stated procedures with respect to that part applicable to the valuation in which the CPA is engaged. Note: The other parts of SSVS No.1 will continue in full force and effect.
Illustrative Client Engagement Situations:
Set forth below are examples that illustrate some of the client engagement situations where SSVS
No.1 should not apply, as well as other client engagement situations where it should apply.
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Illustrative Client Engagement Situations
Where SSVS No. 1 Does Not Apply
Income Tax Return Preparation
1. Preparing a tax return (including income tax, gift tax, estate tax, or property tax) using a valuation of a business, business ownership interest, security, or intangible asset that was provided by the client or a third party
Income Tax
2. Determination of the income tax deductibility of interest expense under a non-recourse loan
Transfer Tax
3. Mathematical calculation of value of an FLP ownership interest when the client or a third party provides the value of all of the partnership assets and liabilities
4. Mathematical calculation of an FLP ownership interest when the partnership owns only publicly traded securities and the CPA relies on public security prices
5. Calculation of an estate’s expected estate tax liquidity requirements based on assumed or hypothetical valuations of a business, business ownership interest, security, or intangible asset
Tax Planning
6. Informal oral conversations or written communications with a client regarding the alternative tax consequences of gifting versus selling, using an assumption of a specific value for a business, business ownership interest, security, or intangible asset
7. Providing tax advice for personal or corporate planning purposes without reference to the value of a business, business interest, security, or intangible asset
8. Personal tax planning services that include estimating the proceeds from a hypothetical future sale of the client’s business interest
9. Personal tax planning services that include estimating the proceeds from a hypothetical future sale of the business interest and the client or a third party provides the value
10. Personal tax planning services that include estimating the proceeds from a hypothetical future sale of a business interest including a discussion of valuation concepts or industry pricing multiples based on the CPA’s knowledge where the discussions assist the client to determine a hypothetical or assumed value
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Illustrative Client Engagement Situations
Where SSVS No. 1 Does Not Apply
11. Preparing a personal tax and financial plan that includes an estimate of the future proceeds from the sale of a business interest at retirement, where the CPA estimates the future proceeds based on a current business value estimated by applying a rule of thumb—but the CPA does not consider the actual risk factors of the subject business or exercise other professional judgment
Tax Controversies and Disputes
12. Settlements or negotiations of a business, security, or asset value for purposes of an offerin-compromise related to taxation disputes
Other Tax Related Engagements
13. A Section 482 intercompany transfer pricing study that involves the use of the specific methodologies, data, terminology, and documentation requirements provided in the Section
482 regulations and procedures
14. Purchase price allocations where the CPA allocates the residual amount in excess of the value of tangible assets (provided by others) to goodwill (without consideration of other intangible assets)
15. Valuation of the fair market value of assets in, or calculation of the required distribution of, a charitable remainder trust that only holds assets such as publicly traded stock
16. Preparation of a cost segregation study to allocate the cost of a building structure between the real property and the personal property components
17. Quantification of goodwill as a purchase price residual amount when the client or a third party provides all other tangible and intangible asset values
(a) for income tax accounting purposes
(b) for property tax accounting purposes
(c) for financial accounting purposes
Engagements Performed for Transaction Purposes
18. Valuation of a shareholder’s stock purchase price based on the financial statement-related buy/sell formula provisions of a shareholder’s agreement
19. Valuation of a law firm partner’s capital account based solely on the application of the partnership agreement financial statement-related buy-in/buy-out formula
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Illustrative Client Engagement Situations
Where SSVS No. 1 Does Not Apply
20. Calculation of an acquisition or merger cash “hold back” requirement for tax (or other) contingencies
21. Mathematical calculation of a stock price based on the financial statement-related pricing formula specified in a buy/sell agreement
22. Mathematical calculation of a stock price based on the financial statement-related pricing formula specified in a shareholder, partnership, or member agreement
Engagements Performed for Financing Purposes
23. Calculation of a business or security value based on the client’s balance sheet account balances for purposes of estimating loan collateral value
24. Estimation of the maximum value an ESOP could afford to pay for sponsor company stock based on employer corporation statutory payroll-related tax deduction limitations
25. Estimation of the maximum value an ESOP could afford to pay for sponsor company stock based on the employer corporation’s debt repayment capacity
Engagements Performed for Litigation Purposes
26. Analysis of a trademark-related or patent-related arm’s-length royalty rate for intellectual property infringement litigation economic damages purposes
27. Calculation of historical business lost profits as a measure of economic damages in a commercial litigation matter
28. Calculation of the present value of future business lost income (including a terminal value calculation) as a measure of economic damages in a commercial litigation matter
29. Economic damages analyses related to a breach of noncompete agreement litigation
30. Economic damages analyses related to a breach of commercial contract litigation
31. Economic damages (including arm’s-length royalty rate) analyses related to intellectual property infringement litigation
Engagements Performed for Management Information/Strategic Planning Purposes
32. Any mathematical calculation of business, security, intangible asset value where valuation approaches and analyst professional judgment are not applied
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Illustrative Client Engagement Situations
Where SSVS No. 1 Does Not Apply
33. Valuation of a small block of publicly traded stock when the price per share is readily available from a stock exchange
34. Providing advice for personal or corporate financial planning purposes without reference to the value of a business, business interest, security, or intangible asset
35. Personal financial planning services that include estimating the proceeds from a hypothetical future sale of the client’s business interest
36. Personal financial planning services that include estimating the proceeds from a hypothetical future sale of the business interest and the client or a third party provides the value
37. Personal financial planning services that include estimating the proceeds from a hypothetical future sale of a business interest including a discussion of valuation concepts or industry pricing multiples based on the CPA’s knowledge where the discussions assist the client to determine a hypothetical or assumed value
38. Preparing a personal financial plan that includes an estimate of the future proceeds from the sale of a business interest at retirement, where the CPA estimates the future proceeds based on a current business value estimated by applying a rule of thumb—but the CPA does not consider the actual risk factors of the subject business or exercise other professional judgment
39. Analysis of amount of client insurance coverage requirements based on assumed levels of business value
40. Analysis of the amount of client insurance coverage requirements based on business values provided by client or a third party
41. Advice to a client on how to determine a merger/acquisition purchase price
42. Advice to a client (including due diligence investigations) on the appropriateness of any particular merger/acquisition candidate
Engagements Performed for Financial Accounting Purposes
43. Calculation of the value of accounts receivable or inventory for financial statement reporting purposes
44. Assignments from an employer to an employee CPA not in public practice to prepare a valuation for internal financial reporting purposes
45. Compliance or regulatory filings that require an estimate of value and the value is provided by the client or a third-party
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Illustrative Client Engagement Situations
Where SSVS No. 1 Does Not Apply
46. Compliance or regulatory filings that require an estimate of value using a formula wherein valuation approaches and professional judgment are not necessary
47. Valuation of inventory, accounts receivable, marketable securities, other investment accounts, or any reserve or allowance as part of an audit examination
48. Mathematical calculation of insolvency based on the client’s balance sheet net asset value
49. Mathematical calculation of the amount of stock appreciation rights (SARs) when the client or a third party provides the close corporation stock value
50. Mathematical calculation of the amount of employee stock option, grant, etc. compensation when the client or a third party provides the close corporation stock value
51. Quantification of the client corporation’s net book value based on:
(a) balance sheet account balances, or
(b) asset or liability values provided by client or a third party
52. Calculation of a present value discount rate, a direct capitalization rate, or a valuation pricing multiple to be used in a business, security, or intangible asset valuations
53. Quantification of the appropriate amount of functional, technological, or external
(including economic) obsolescence for use in a cost approach valuation analysis
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Illustrative Client Engagement Situations
Where SSVS No. 1 Applies
1. Valuation of goodwill and/or other intangible assets for income tax return compliance purposes including:
(a) determining or adjusting asset tax basis
(b) amortization deductions
(c) charitable contribution deductions
2. Valuation of a business or intangible asset to determine insolvency (or solvency) for purposes of recognizing cancellation of indebtedness income
3. Asset valuation assignments under Section 704(c) where one of the assets is a business, security, or intangible asset and the client or a third party does not provide the value
4. Planning for cancellation of debt income where the taxpayer relies on the Section 108 insolvency provisions and the client or a third party does not provide the asset values
5. Employer corporation stock valuation for purposes of Section 409(A)
6. Taxpayer corporation stock valuation for purposes of a Section 165 worthless stock deduction
7. Valuation of business, business ownership interest, security, or intangible asset for estate tax planning purposes
8. Valuation of business, business ownership interest, security, or intangible asset for estate tax return compliance purposes
9. Valuation of business, business ownership interest, security, or intangible asset for gift tax return compliance purposes
10. Estimating the fair market value of an ownership interest or an assignee interest in an FLP for gift tax or estate tax purposes, without applying any valuation discounts
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Illustrative Client Engagement Situations
Where SSVS No. 1 Applies
Tax Controversies and Disputes
11. Valuation of a going concern business unit and/or an intangible asset for state or local ad valorem property tax appeal purposes, including
(a) tax return compliance purposes
(b) assessment appeal purposes
(c) assessment litigation purposes
Other Tax Related Engagements
12. Computing the fair market value of assets in a charitable remainder trust, if the analysis involves the use of valuation approaches and professional judgment
13. Valuation of non-publicly traded limited partnership interests for any taxation purpose
14. Estimating the fair market value of assets in, or computing the required distribution of, a charitable remainder trust that holds assets such as an interest in a LLC
15. Valuing a partnership interest where the client and the CPA agree that the CPA will apply an “average” valuation discount based on either:
(a) published empirical discount studies or
(b) published judicial precedent
16. Quantification of the value of goodwill using the “formula approach” specified in Revenue
Ruling 68-609
17. Valuation of a closely held business or security only using the eight specific factors mentioned in Revenue Ruling 59-60
18. Valuation of a corporate client’s subsidiaries for purposes of intercompany transfer between domestic ownership and foreign ownership
19. Valuation of a corporate client’s intellectual property for purposes of intercompany transfers between domestic entities and/or domestic and foreign entities
Engagements Performed for Transaction Purposes
20. Valuation of a block of publicly traded stock if blockage, lock-up, contractual restrictions, or marketability transferability restrictions are considered
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Illustrative Client Engagement Situations
Where SSVS No. 1 Applies
21. Valuation of any share of stock that is not publicly traded
22. Valuation of a not-for-profit business entity to be purchased by a for-profit business entity—to test for private inurement
23. Valuation of a for-profit business entity to be purchased by a not-for-profit business entity—to test for private inurement
24. Valuation of a business or security for ESOP-related purposes, including:
(a) ESOP purchase of the employer corporation stock
(b) ESOP purchase of a plan participant’s stock related to termination, retirement, diversification, etc.
(c) assessment of the fairness of an ESOP-owned stock purchase/sale transaction
(d) assessment of the fairness of employer corporation stock tender offers
25. Analysis of the fairness of a merger or acquisition transaction related to the purchase or sale of a corporation’s stock
26. Analysis of adequate consideration related to an ESOP sponsor company stock purchase/sale transaction
27. Recommending, determining, or opining on a merger or acquisition purchase price based on a business valuation
28. Valuation analysis to conclude a stock price for purposes of a put or call transaction under a valuation-based buy/sell agreement
29. Valuation analysis to conclude a stock price for purposes of a valuation-based security purchase or sale under a stockholder, partner, or member agreement
Engagements Performed for Financing Purposes
30. Analysis of the solvency (or insolvency) of a corporation leveraged merger or acquisition transaction
31. Valuation of a business, business ownership interest, security, or intangible for purposes of estimating loan collateral value
Engagements Performed for Litigation Purposes
32. Determination of the value of a business, security, or intangible asset by a CPA employed in industry, government, or education who “moonlights” as a valuation expert witness
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Illustrative Client Engagement Situations
Where SSVS No. 1 Applies
33. Estimation of the fair value of a debtor’s assets to determine solvency or insolvency for bankruptcy litigation purposes
34. Valuation of a business, business ownership interest, security, or intangible asset for marital dissolution litigation purposes
35. Valuation of a business, business ownership interest, security, or intangible asset for either shareholder oppression or dissenting shareholder appraisal rights litigation
36. Valuation of a business, business ownership interest, security, or intangible asset for contract disputes and other commercial litigation purposes
37. Valuation of a business, business ownership interest, security, or intangible asset for intellectual property infringement litigation purposes
38. Valuation of a business, business ownership interest, security, or intangible asset for eminent domain or condemnation purposes
39. Analysis of the fairness of a debtor in possession stock purchase/sale transaction within a bankruptcy context
40. Economic damages analyses based on a business valuation (or on a comparative business valuation damages methodology)
Engagements Performed for Management Information/Strategic Planning Purposes
41. Providing client advice for personal financial planning purposes where the value of any business, security, or intangible asset is estimated
42. Providing client advice for intergenerational wealth transfer purposes where the value of any business, security, or intangible asset is estimated
43. Business or stock valuations for purposes of quantifying insurance coverage requirements or claims related to:
(a) key person life insurance
(b) buy/sell agreement life insurance
(c) business interruption insurance
Engagements Performed for Financial Accounting Purposes
44. Purchase price allocations where the residual amount (in excess of the tangible asset values) is allocated to specific intangible assets based on the intangible asset’s value, including:
(a) income tax purchase price allocations in taxable asset acquisitions
(b) financial accounting purchase price allocations regarding business combinations
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Illustrative Client Engagement Situations
Where SSVS No. 1 Applies
45. Valuation of purchased goodwill (or other nonamortizable intangible assets) for SFAS No.
142 step 2 intangible asset impairment testing purposes
46. Valuation of tangible assets or amortizable intangible assets for SFAS No. 144 step 2 longlived asset impairment testing purposes
47. Regulatory compliance filings that require an estimate of value and that estimate is based valuation approaches and professional judgment
48. Fresh start accounting business and asset valuations for purposes of AICPA SOP 90-7 compliance
49. Employer corporation stock valuations for purposes of SFAS No. 123 (R)
50. Close corporation stock valuation for purposes of measuring stock appreciation rights
(SARs)
51. Close corporation stock valuation for purposes of measuring employee stock option, grant, etc. compensation
52. SFAS No. 157 fair value valuation of a client’s intangible assets
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