When figuring the minimum investment return, a foundation may use any reasonable method to determine the fair market value on a monthly basis of securities including, but not limited to, common and preferred stock, bonds, and mutual fund shares, for which market quotations are readily available as long as that method is consistently used.  Market quotations are considered readily available if a security is:

1. Listed on the New York or American stock exchanges or any city or regional exchange for which quotations appear on a daily basis, including foreign securities listed on a recognized foreign, national, or regional exchange,
2. Regularly traded in the national or regional over-the-counter market for which published quotations are available, or
3. Locally traded, for which quotations can readily be obtained from established brokerage firms.

For securities held in trust for, or on behalf of, a foundation by a bank or other financial institution that values those securities periodically using a computer, a foundation may determine the correct value of the securities by use of this computer pricing system if the system is acceptable to the IRS for federal estate tax purposes.

Example 1.  The Young Foundation, a private foundation, owns 1,000 shares of Smith Corporation stock, which is regularly traded on the New York Stock Exchange.  The Young Foundation may follow a consistent practice of valuing Smith Corporation stock on the last trading day of each month based on its closing price for that day.

Example 2.  The Young Foundation, a private foundation, owns 1,000 shares of an unlisted corporation, which is locally traded.  Quotations on unlisted stock can be readily obtained from established brokers.  The Young Foundation may consistently value its unlisted stock as of the 15th day of each month by getting a bona fide quote of the bid and asked prices from an established brokerage firm and by taking the mean of those prices on that day.  If a quotation is not available on the regular valuation dates, the Young Foundation may value its unlisted stock based on a bona fide quote obtained on the first day after the regular valuation date that the quotation is available.

Reductions in value for blockage or similar factors.  In determining the value of securities, the private foundation may establish that as a result of (1) the size of the block of securities, (2) the fact that the securities are in a closely held corporation, or (3) the fact that the sale of the securities would result in a forced or distress sale, the price at which the securities could be sold outside the usual market may be a more accurate indication of value than market quotations.  In such a case, any reduction in value for all of these reasons together may not be more than 10% of the fair market value of the securities to which the discount applies.

Unlisted securities effectively controlled by foundation and disqualified persons.  If the foundation owns voting stock of an issuer of unlisted securities and has, or together with disqualified persons or another private foundation has, effective control of the issuer, then, to the extent that the issuer's assets consist of shares of listed securities issues, the assets shall be valued monthly on the basis of market quotations.

Cash.  For purposes of the minimum investment return, a foundation figures its cash balances on a monthly basis by averaging the amount of cash on hand on the first and last days of each month.

Common trust funds.  If a private foundation owns a participating interest in a common trust fund established and administered under a plan providing for the periodic valuation of participating interests during the fund's tax year and reporting these valuations to participants, the value of the foundation's interest in the common trust fund based on the average of the valuations reported to the foundation during its tax year will ordinarily be an acceptable method of valuation for purposes of the minimum investment return.

Other assets.  The fair market value of assets other than those described earlier is determined annually except as described later.  The valuation may be made by private foundation employees or by any other person, whether or not that person is a disqualified person.  Such a valuation, if accepted by the IRS, is valid only for the tax year for which it is made.  A new valuation is required for the following tax year.  However, the fair market value of any Interest in realty, including any improvements thereon, may be determined on a five-year basis by a written, certified, independent appraisal by a qualified person who is neither a disqualified person (see Chapter V) nor an employee of the private foundation.

The appraisal must contain a statement to the effect that, in the appraiser's opinion, the appraised assets were valued in accordance with valuation principles regularly employed in making appraisals of such property using all reasonable valuation methods.  The foundation must keep a copy of the independent appraisal for its records.  If a valuation is reasonable, the foundation may use it for the tax year for which the valuation is made and for each of the four following tax years.

Any valuation of real property by a certified, independent appraisal may be replaced during the five-year period by a later five-year valuation by a certified, independent appraisal or by an annual valuation.  The most recent valuation will be used in figuring the foundation's minimum investment return.

The valuation must be made no later than the last day of the first tax year for which the new valuation applies.

A valuation, if properly made according to the rules discussed here, will not be disturbed by the IRS during the five-year period for which it applies, even if the actual fair market value of the property changes during that period.

Commonly accepted valuation methods must be used in making the appraisal.  A valuation based on acceptable methods of valuing property for federal estate tax purposes is acceptable.  An appraisal is a determination of fair market value and should not be construed in a technical sense to be peculiar to particular property or interests therein as, for example, mineral interests in real property.

Valuation date.  If an asset is required to be valued annually, the asset may be valued as of any day in the private foundation's tax year if the foundation follows a consistent practice of valuing the asset as of that date in all tax years.  A valuation of real estate determined on a five–year basis by a certified, independent appraisal may be made as of any day in the first tax year of the private foundation to which the valuation is to be applied.

Assets held for less than a tax year.  If an asset is held for less than one tax year, the value of that asset is found by multiplying the fair market value of the asset by a fraction.  The numerator of the fraction is the number of days in the tax year that the foundation held the asset, and the denominator is the total number of days in the tax year.