Q&A: Determining fair market value

April 9, 2010

The rule of thumb for fair market value hasn't applied for some time, if ever.

Q: Does the rule that the fair market value of a practice is worth one times the net income still apply?

A: No, that rule of thumb hasn't applied for quite some time, if ever. If any rule of thumb applies, it is that fair market value equals two to two-and-one-half times the dividends as defined by IRS Revenue Ruling 59-60.

You can learn more about business valuation at http://www.irs.gov/irm/part4/irm_04-048-004.html. Only a thorough appraisal can determine the value of any particular practice, however, just as clinical rules of thumb don't necessarily apply to an individual patient.