- 44 -
do not believe that marketability concerns rise to the same level
as a security with a short-term holding period like restricted
stock.18 In light of the foregoing, we find no persuasive
evidence in the record to support our reliance on the restricted
stock studies in determining an appropriate marketability
discount.19
c. Combined Minority and Lack of Marketability
Discount
Respondent has chosen to apply a combined minority and lack
of marketability discount of 17 percent, while petitioners seek a
minority discount of 30 percent and a marketability discount of
35 percent, which would result in a combined discount of
approximately 54.5 percent. While we take into account the
articles cited by petitioners, we are by no means bound by the
report of petitioners' expert. We also recognize that while the
minority and marketability discounts may be conceptually
distinct, Estate of Newhouse v. Commissioner, 94 T.C. at 249
(1990), the boundaries are often less clear in practice, and the
empirical studies cited by petitioners may in fact reflect the
18 That all investors have identical investment horizons is
one of the most widely criticized assumptions of CAPM. See
Gilson, "Value Creation by Business Lawyers: Legal Skills and
Asset Pricing", 94 Yale L.J. 239, 252 (1984).
19 For further discussion and criticism of the use of the
Moroney, Maher, and Emory studies to support the application of a
marketability discount in the valuation of stock in a closely
held corporation, see Mandelbaum v. Commissioner, T.C. Memo.
1995-255, affd. without published opinion 91 F.3d 124 (3d Cir.
1996).
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