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interests in the leased land. We agree with Lipscomb that an
undivided fractional interest in the leased land will make it a
less favorable investment than the entire interest, by making it
less marketable and more illiquid, and that these factors may be
appropriately considered in selecting the discount rate.20 See
Saunders v. United States, 48 AFTR 2d 81-6279, 81-2 USTC par.
13,419 (M.D. Ga. 1981). Accordingly, we conclude that Lipscomb’s
selected discount rate is fair and reasonable. Our conclusion is
bolstered by the fact that, when converted to a pretax rate,
Lipscomb’s discount rate nearly coincides with the “basic rate”
determined by Dilmore using a different methodology based on
comparisons with various other types of investments.21
20 Alternatively, where the value of the transferred
property is to be determined with adjustments for lack of
marketability, it could be appropriate in some circumstances to
value the donor’s entire interest in the transferred property
employing a discount rate that reflects no adjustment for lack of
marketability, and then to adjust the value so determined for
lack of marketability with appropriate valuation discounts. As
discussed infra, however, it is inappropriate to make redundant
adjustments to both the discount rate and the valuation discount.
See Bittker & Lokken, Federal Taxation of Income, Estates, and
Gifts, par. 135.3.2, at 135-30 (2d ed. 1993) (“When property is
valued by capitalizing its anticipated net earnings, no
marketability discount is needed if the capitalization factor
reflects not only the earnings in isolation, but also the fact
that the investor may find it difficult to liquidate the
investment.”).
21 We reject Dilmore’s additional 1-percent discount for the
lack of a reforestation clause at the end of the lease. As
discussed infra, respondent has allowed, and we have accepted, an
allowance for reforestation in determining the value of the
reversion, thus making Dilmore’s additional 1-percent discount
for this purpose unnecessary.
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