- 42 -
custom or policy of redeeming common stock; (6) because FIC's
annual sales were only in the $7 million range, it was not likely
to go public; and (7) there was no secondary market for FIC
stock. While FIC had significant potential for controlled
growth, a healthy balance sheet, and robust earnings growth, we
find the factors limiting marketability to be significant.
In concluding that a 35-percent marketability discount
should be applied, petitioners' expert cited four articles,
including three studies on the sale of restricted stock17 that
have been frequently brought to the attention of this Court.
See, e.g., Estate of Jung v. Commissioner, 101 T.C. 412, 435-436
(1993); Mandelbaum v. Commissioner, T.C. Memo. 1995-255 (1995),
affd. without published opinion 91 F.3d 124 (3d Cir. 1996);
Estate of Lauder v. Commissioner, T.C. Memo. 1992-736; Estate of
Friedberg v. Commissioner, T.C. Memo. 1992-310; Estate of Berg v.
Commissioner, T.C. Memo. 1991-279, affd. in part and revd. and
remanded in part 976 F.2d 1163 (8th Cir. 1992); Estate of
O'Connell v. Commissioner, T.C. Memo. 1978-191, affd. in part and
revd. in part 640 F.2d 249 (9th Cir. 1981). The first restricted
stock study, Gelman, “An Economist-Financial Analyst's Approach
to Valuing Stock of a Closely-Held Company”, 36 J. Taxn. 353
(June 1972), studied the transactions of four large, closed-end
17 Restricted stock is stock acquired from an issuer in a
transaction exempt from the registration requirements of the
Federal securities laws. Sales of restricted stock are generally
restricted within the first 2 years after issuance.
Page: Previous 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 NextLast modified: May 25, 2011