Most U.S. businesses operate as so-called “pass-through” entities, including partnerships, limited liability companies (LLCs) and S corporations. For decades, the IRS and valuation professionals have been at odds over how to value pass-through businesses because of their unique tax characteristics. Taxation of pass-through entities For pass-through entities, all items of income, loss, deduction and credit pass through to the owners’ personal tax returns, and taxes are paid at the level of the individual owners. Distributions to owners generally aren’t taxable to the extent that owners have positive tax basis in the entity. For the most part, operating as a pass-through entity is a smart tax-saving strategy for entities that qualify. However, for minority owners that have no control over distributions, this favorable tax treatment may be less advantageous...