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10-percent discount. In choosing this discount, Mr. Haywood
considered the 12,000 shares of stock held by decedent at her
death to be a “swing block” of stock, and this convinced him that
the lack of marketability discount should be relatively small.
His final value for FNBW, after applying the 10-percent lack of
marketability discount, was $159.53 per share.
Court’s Analysis
We believe there are several problems with Mr. Haywood’s
analysis but that adjustments to correct for his errors can be
made which result in a reliable estimate of the value of the FNBW
stock.
The first problem with Mr. Haywood’s analysis is that he
failed to apply a minority interest discount to his asset-based
value. “Ignoring discounts for lack of control [i.e., minority
interest] and lack of marketability is contrary to long-
established valuation methods well accepted by the Courts in
cases presenting the value of stock in closely held
corporations.” Estate of Newhouse v. Commissioner, 94 T.C. at
249. Mr. Haywood’s method was to estimate the net asset value of
FNBW and to treat this as the market value. However, the owner
of a minority interest in FNBW would not have control of its
assets. Thus, a minority interest discount is necessary to
achieve an accurate asset-based value for FNBW. Applying a
minority interest discount of 32 percent, the figure used by Mr.
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