Market approach

What is Market approach?

The market approach asks what the same position would pay if it were held by a non-owner at arm’s length in a similar company. The IRS job aid calls this the most commonly used of the three.

Source: Methodology

How it shows up in a Study

In a Study, the market comparison rests on published federal wage data from the BLS OEWS program, cited by release. Each wage figure shows its source, occupation, geography and period, plus anything done to it. Where the facts of the role differ from what the surveyed position assumes, such as hours worked, experience, or a partial year of service, the difference is recorded with a written reason.

What a Reviewer checks

A Reviewer asks whether the comparison is a fair one: the right occupation for the work, the right geography, the right period. Then the adjustments. Each should name the fact it responds to and why it was treated that way. Because the wage table is public, the Reviewer can open it and check the starting figure directly.

Public source

IRS, Reasonable Compensation Job Aid for IRS Valuation Professionals (2014), which describes the market approach. Source: https://www.irs.gov/pub/irs-lbi/Reasonable%20Compensation%20Job%20Aid%20for%20IRS%20Valuation%20Professionals.pdf. Wage data: U.S. Bureau of Labor Statistics, Occupational Employment and Wage Statistics. Source: https://www.bls.gov/oes/

Not tax advice.

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Reasonable compensation for S corporation owners