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language of section 2040 cannot be construed to prohibit
fractional interest discounts and lack of marketability
discounts, while such valuation discounts have been allowed under
section 2033.
In cases dealing with section 2033, the rationale for a
fractional interest discount is based on the rights of the
tenants in common under local law, arising from the unity of
interest and unity of possession. A fractional interest discount
may be appropriate when a partial interest in property would sell
for less than its proportionate share. Estate of Iacono v.
Commissioner, T.C. Memo. 1980-520. For example, decedent owns
Real Property A with X as tenants in common. While decedent has
an undivided one-half interest in the property, a willing buyer
may discount the value of decedent's interest in Property A due
to the fact that a buyer of such interest would own the property
concurrently with the other tenant in common, and as such, there
is the inconvenience of dealing with several owners, partition
suits, and potential disagreements among the owners. See Estate
of Barclay v. Commissioner, 2 B.T.A. 696 (1925); Estate of Youle
v. Commissioner, T.C. Memo. 1989-138. Discounts for lack of
marketability arise from the inherent difficulty in the sale of
the asset.
In arguing for the application of fractional interest
discounts and/or lack of marketability discounts in the context
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