-27-
acknowledged that the typical discount cited for restricted
stock15 is 35 percent and said that the unregistered stock in a
closely held corporation is subject to a larger discount than
that applied to restricted stocks. His explanation of his use of
a 25-percent discount for lack of marketability was not
convincing.
2. Nonvoting Stock
Prospective buyers will pay a premium for shares with voting
power or obtain a discount for nonvoting shares. Wallace v.
United States, 566 F. Supp. 904, 917 (D. Mass. 1981) (voting
shares appraised 5 percent higher than nonvoting shares); Kosman
v. Commissioner, T.C. Memo. 1996-112 (nonvoting shares discounted
by 4 percent); Estate of Winkler v. Commissioner, T.C. Memo.
1989-231.
Hawkins applied a discount of 3.66 percent for lack of
voting power to the value ($337.87) of the Rock Hill stock.
Hawkins based this discount on a study of 43 public companies
with voting and nonvoting shares. The study found that the
average discount for nonvoting stock was 3.66 percent. Hakala
discounted the nonvoting stock of Rock Hill by an additional 5
percent. We find that Hawkins' use of a 3.66-percent discount
for nonvoting stock was reasonable.
15 Under SEC Rule 144(b), 17 C.F.R. sec. 230.144 (1984),
restricted securities eventually become freely tradeable through
either registration or the passage of time.
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