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share4 (representing a 5.24-percent discount from the mean between
the highest and lowest quoted selling prices). Neither an appraisal
nor supporting documentation was attached to the estate tax return
to support the selected blockage discount.
In connection with an Internal Revenue Service (IRS)
examination of petitioner's tax return, the estate submitted to the
IRS a January 24, 1996, appraisal prepared by Baird's John D. Emory
(the Emory report) which concluded that an 8-percent blockage
discount was appropriate (or a fair market value for the stock of
$13.915 per share).
The estate also submitted an appraisal report prepared on July
7, 1997, by Robert E. Kleeman, Jr., of Clifton Gunderson, L.L.C.,
a certified public accounting and consulting firm (the July 1997
Kleeman report), which concluded that a 22.5-percent discount was
appropriate (or a fair market value for the stock of $11.72 per
share). Mr. Kleeman arrived at this conclusion, in part, by
selecting 18 reported blockage discount Tax Court cases which he
determined to be "factually similar to the matter under
discussion". The discounts in the selected cases ranged from 8.1
percent to 52.9 percent. The average or mean discount was 26
percent, and the median discount was 19 percent. Mr. Kleeman
averaged the mean and median discount to arrive at the 22.5-percent
discount. (In obtaining the average discount, Mr. Kleeman equally
weighted the discount allowed in each of his selected cases. In
4 The return stated the discount to be 75 cents per
share.
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