Comments by special counsel in the IRS Office of Chief Counsel highlight the difficulties associated with and the perils of valuing profits interest for pre-IPO companies.

Companies contemplating IPOs should take great care to ensure their valuations consider the potential IPO value (not to mention the potential for an unsuccessful IPO that does not yield the expected value) as one of a number of key factors in estimating the fair market value of the profit interest.  An unsupported or unrealistic valuation could create significant risk for the company.