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A minority interest in an S Corporation should be entitled to a valuation discount for both estate and gift tax purposes. The basis for the discount is lack of control and lack of marketability.

In general, the value to be used is the fair market value determined on the basis of what a willing buyer and a willing seller would pay, when neither is under any compulsion to buy or sell, and both parties are fully informed as to the relevant facts.  This valuation standard is applied without regard to what interests or other considerations may apply to a donee or transferee.  Because of this, significant discounts are usually applied to transfers of minority interests even when those interests are transferred to family members who control the business, or end up in control of the business as a result of the transfer.