If an ESOP stock is not publicly traded, a qualified independent appraiser is used to determine the fair market value. Watch our video to learn how the value is calculated.
Both the Internal Revenue Code and ERISA require that the ESOP stock value be determined by way of using a qualified independent appraiser if the stock is not publicly traded. The ESOP trustee engages an appraiser using multiple methods of valuation and determines the transaction value on the date of the transaction and the value of the stock on the last day of the plan year.
The methods that the appraiser uses are those that you see used in other types of appraisals, but the appraiser also applies certain conventions and assumptions that are typical for ESOP transactions that you might not see in other areas of valuation practices such as estate and gift valuation.