- 38 -
stock. We approve petitioners' weighting of EBITDA in
determining an August 1981 value, since we believe that the use
of 3 years of financial statements provided a more accurate
earnings picture than the capitalization of any single year.16
Finally, we approve of the adjustments made by IPC after
calculating a multiple of EBITDA. We find that the stock in FIC
had an equity value per share of $25,574 in February 1980 and
$32,759 in August 1981.
3. Discounts
a. Minority Interest Discount
A minority interest discount reflects the minority
shareholder's inability to compel either the payment of dividends
or liquidation in order to realize a pro rata share of the
corporation's net earnings or net asset value. Discounts for a
minority interest and for lack of marketability are conceptually
distinct, and the appropriate percentage rate of each of them is
a question of fact. Estate of Newhouse v. Commissioner, 94 T.C.
at 249.
Because the blocks of stock transferred in the 1980 Gifts
and in the 1981 Recapitalization were minority interests, it is
appropriate to apply a minority interest discount in their
valuation. Since the willing buyer-willing seller test is an
objective test, requiring that potential transactions be analyzed
16 FY 1979, FY 1980, and FY 1981 EBITDA were weighted 10
percent, 30 percent, and 60 percent, respectively.
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