When a Company converts from being taxed as a C-corporation to being taxed as an S-corporation, a business appraisal is required to determine the Company’s current fair market value. This appraisal is required so that the built-in gains that exist as of the date of the S-corporation election can be determined and reported to the Internal Revenue Service (IRS). This is important because if the Company is sold during the statutory recognition period (which is currently five years after the date of S-corporation election but has varied from as little as five to as many as ten years in recent years), then the proper tax treatment can be applied to the Company’s built-in gains that existed prior to the S-corporation election versus the newly created gains that have been created after the S-corporation election.