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under the market method because as discussed supra, the
environmental liabilities have already been included in the
unadjusted value under that method.
3. Control Premium
A control premium may be necessary when valuing an interest
which gives its holder unilateral power to direct corporate
action, select management, decide the amount of distributions,
rearrange the corporation's capital structure, and decide whether
to liquidate, merge or sell assets. See Estate of Newhouse v.
Commissioner, 94 T.C. at 251-252. Petitioner's expert testified
that a holder of decedent's interest would have the power (under
California law) to sell all of Deft's assets, dissolve the
company, and do virtually anything he or she wanted to do with
Deft. Decedent's 81.93-percent interest is a controlling
interest. HML applied a control premium of 25 percent in its
calculations under the market method only.
Whether or not a control premium is appropriate depends on
the valuation method employed in reaching the unadjusted value of
the stock. Where the method used values the stock as if it were
a controlling interest, no control premium is necessary because
the control aspect has already been accounted for within the
unadjusted value. See Pratt et al., Valuing A Business: The
Analysis and Appraisal of Closely Held Companies 303-306 (3d ed.
1996).
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