QSBS Stock Valuation for Gifting

Your 409A or your post-money valuation from investors is not the right number.

When implementing a QSBS stacking strategy, you need to gift shares to trusts. Gifting shares triggers a question most founders haven't considered: what is the fair market value of the shares being gifted?

The answer matters because FMV determines how much of your lifetime gift tax exemption each transfer consumes. Get it wrong, and you either waste exemption (overpaying) or invite IRS scrutiny (underpaying).

Three Numbers, Three Different Purposes

Founders often have multiple “valuations” for their company floating around. They are not interchangeable.

409A Valuation — Not for gifting

A 409A valuation is required for pricing stock options to comply with IRS deferred compensation rules. It typically values common stock and applies specific methodologies (backsolve, OPM) suited to option pricing — not gift tax reporting. Using your 409A for gifting is like using your car insurance policy to insure your house: same general category, different purpose entirely.

Last-Round Pricing — Not for gifting

Your Series A or Series B price per share reflects the value of preferred stock with liquidation preferences, anti-dilution protections, and board seats. Common stock — which is what founders typically gift — lacks these features and is worth significantly less.

Independent Gift Tax Appraisal — The right answer

An independent appraiser determines the fair market value of the specific shares being gifted, applying appropriate discounts and using methodologies accepted by the IRS for gift tax purposes. This is the only valuation that should appear on your gift tax return.

Why the Gift Tax Value Is Often Lower Than You Expect

A qualified independent appraisal for gift tax purposes typically applies two key discounts to the enterprise value:

Discount for Lack of Marketability (DLOM)

Private company shares cannot be freely sold on a public exchange. This illiquidity reduces their fair market value. DLOM discounts typically range from 15% to 35%, depending on the company's stage, the likelihood and timeline of a liquidity event, and contractual transfer restrictions.

Minority Interest Discount

A minority block of shares has no control over corporate decisions — it can't force a sale, declare dividends, or elect directors. This lack of control reduces the per-share value. Minority discounts typically range from 10% to 30%.

Combined, these discounts can reduce the gift tax value of shares by 25% or more compared to the headline enterprise valuation. For a founder gifting shares to trusts as part of a QSBS stacking strategy, this means using significantly less lifetime exemption per transfer.

Why Early Gifting Preserves Your Lifetime Exemption

The fair market value of your shares increases as your company grows. Gifting earlier — when valuations are lower — means each transfer to a trust consumes less of your $15 million lifetime exemption (as of 2026).

Example: A founder who owns 20% of their company gifts 10% of their personal holdings to a non-grantor trust.

Seed stage ($5M company)

Gifting 10% of shares → ~$100K of exemption (Preserves ~$14.9M)

Series A ($30M company)

Gifting 10% of shares → ~$600K of exemption (Preserves ~$14.4M)

Series B ($100M company)

Gifting 10% of shares → ~$2M of exemption (Preserves ~$13M)

Pre-exit ($500M company)

Gifting 10% of shares → ~$10M of exemption (Preserves ~$5M)

An independent gift tax appraisal may reduce these amounts through applicable discounts for lack of marketability and minority interest.

Key insight: Waiting until your company is worth $500M to start QSBS planning may make the strategy economically impractical. The gift tax cost of transferring shares at that valuation can exceed the tax savings from stacking. Start early.

The Appraisal Process

A qualified appraisal for gift tax purposes typically involves:

Engagement of an independent appraiser — The appraiser must be qualified under IRS standards and cannot be affiliated with the company or the donor
Company financial analysis — Review of financials, cap table, comparable transactions, and growth trajectory
Discount determination — Application of DLOM and minority interest discounts based on the specific facts
Written report — A formal appraisal report meeting IRS requirements, attached to the gift tax return (Form 709)

We coordinate the appraisal process as part of every QSBS planning engagement, connecting you with qualified appraisers and ensuring the valuation supports both the gift tax filing and the broader stacking strategy.

For California founders, the valuation also impacts the jurisdiction strategy — lower valuations make it more practical to establish multiple out-of-state trusts without exhausting the lifetime exemption.