The Financial Accounting Standards Board issued Accounting Standards Update 2026-03, Fair Value Measurement (Topic 820): Investment Companies with Equity Securities Subject to Contractual Sale Restrictions, on September 9, 2026. While the update is aimed at investment company accounting, it could benefit estate planners and valuation professionals who regularly defend marketability discounts on closely held and restricted stock.
Under existing GAAP, a contractual restriction on the sale of an equity security is not considered when measuring that security’s fair value. As a result, an entity holding restricted shares and an entity holding freely tradable shares of the same investee typically report the same fair value, even though the restricted shares would command a lower price in an actual sale. Stakeholders told FASB that this approach can overstate net asset value, distort performance reporting, and create inequitable outcomes among purchasing, redeeming, and remaining shareholders in funds that hold restricted positions.
ASU 2026-03 addresses this by creating an exception within Topic 820 specifically for investment companies within the scope of Topic 946, Financial Services, Investment Companies. Under the new standard, these investment companies must factor a contractual sale restriction into the fair value measurement of an equity security, rather than ignoring it as under current practice. The update also requires investment companies to separately disclose the dollar amount of the discount attributable to the contractual sale restriction. The amendments are effective for annual reporting periods beginning after December 15, 2027, and interim periods within those years, with early adoption permitted for investment companies covered by the update.
FASB’s explicit acknowledgment that contractual sale restrictions measurably affect the value a market participant would pay for a security lends additional credibility to the general principle underlying marketability discounts. While ASU 2026-03 does not itself govern tax valuations and does not bind the IRS or the Tax Court, it may serve as a helpful reference point for valuation experts articulating why restricted or illiquid interests are worth less than their unrestricted counterparts, and it reinforces that this concept is not merely a taxpayer-favorable litigation position, but a principle now recognized in mainstream financial reporting standards.
Estate planners preparing valuations for gift and estate tax purposes, particularly those involving family-owned entities with transfer restrictions, buy-sell agreements, or other limitations on marketability, should be aware of this update and consider whether it strengthens the analytical footing for discounts already being claimed. For more information about this update, contact Liskow attorneys Leon Rittenberg III, Caroline Lafourcade, and Kevin Naccari, and visit Liskow’s Tax Practice page.