- 41 -
1982 and 1986".28 Assuming that growth rate (28.2 percent), the
value of the operating business would be approximately
$8,250,000. Using the same figure for nonoperating assets as
used to adjust the DCF and capitalization of cash-flows analysis
above results in a total value of approximately $11 million and
$6.2 million for a 56.7-percent interest.
Illiquidity Discount (Marketability Discount)
A discount may be appropriate to reflect illiquidity or
costs of marketing involved in the disposition of an interest in
a small closely held private company. See, e.g., Estate of
Simplot v. Commissioner, 112 T.C. 130 (1999); Estate of Mellinger
v. Commissioner, 112 T.C. 26 (1999); Davis v. Commissioner, 110
T.C. 530 (1998); Estate of Jung v. Commissioner, T.C. Memo. 1990-
5. The parties’ experts disagree about the appropriateness of
the application of a discount to the aggregate minority value of
the 56.7-percent block being valued. Respondent again relies on
the testimony of Robert Fuller and the report prepared by BVS.
BVS, in its original report and in a supplemental report,
concludes that no discount for marketability or illiquidity is
appropriate. Petitioner relies, in part, on CFC’s analysis,
which concludes that a 25-percent “marketability discount” would
be appropriate. Petitioner also relies on a report prepared by
28Petitioner’s expert opines that growth rate utilized
probably overstates the value of PCAB’s operating business in
1987.
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