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figures of Peoples, Mr. Fuller determined the following total
equity values:
Ratio Total Value
Price-to-earnings $24,751,000
Price-to-book equity 19,344,000
Price-to-assets 21,021,000
Mr. Fuller then used the mean of the values determined using the
price-to-book equity and price-to-assets ratios to determine a
total equity value of $20,200,000. He did not include the value
determined using the price-to-earnings ratio, as he thought the
“unusually high earnings reported for the period may result in
the value of Peoples being overstated.” Finally, Mr. Fuller
applied a 10-percent marketability discount.
Mr. Fuller supported his finding of a 10-percent
marketability discount in his discussion of both marketability
and control premium factors. He concluded that little or no
marketability discount was appropriate, because the estate shares
carried significant elements of control and might command a
control premium. Mr. Fuller failed to focus on the fact that two
conceptually distinct adjustments were involved, one a discount
for lack of marketability and the other a premium for the
benefits of control. See Estate of Andrews v. Commissioner, 79
T.C. 938, 952-953 (1982). Although there may be some overlap,
because control, or lack of it, is a factor that may affect
marketability, even controlling shares in a nonpublic corporation
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