- 13 -
2. Lack of Marketability Discount
a. Availability of the Discount
A lack of marketability discount reflects the absence of a
recognized market for closely held stock. See Mandelbaum v.
Commissioner, T.C. Memo. 1995-255; Estate of Trenchard v.
Commissioner, T.C. Memo. 1995-121; Rev. Rul. 77-287, 1977-2 C.B.
319. Neither party disputes that the Deft stock is closely held
stock which is not readily tradable. We therefore shall apply a
lack of marketability discount to the unadjusted values under
both methods.
b. Proper Elements in the Discount
HML applied a 25-percent lack of marketability discount to
the weighted average unadjusted value. HML considered numerous
factors, including Deft's potential environmental liabilities, in
determining the amount of the discount.
Courts have consistently recognized that potential
liabilities can affect the value of corporate stock. See Estate
of Davis v. Commissioner, 110 T.C. at 552, 553, 560; Estate of
Hall v. Commissioner, 92 T.C. at 329, 341-342; Payne v.
Commissioner, T.C. Memo. 1998-227; Estate of Mitchell v.
Commissioner, T.C. Memo. 1997-461; Sackett v. Commissioner, T.C.
Memo. 1981-661; Richards v. Commissioner, T.C. Memo. 1976-380.
We believe a hypothetical buyer of decedent's interest in Deft
would consider these potential liabilities when negotiating a
purchase price. We find that these potential liabilities must be
taken into account in the valuing of decedent's interest.
Page: Previous 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 NextLast modified: May 25, 2011