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For estate tax purposes, the fair market value of an
interest in a partnership “is the net amount which a willing
purchaser, whether an individual or a corporation, would pay for
the interest to a willing seller, neither being under any
compulsion to buy or to sell and both having reasonable knowledge
of relevant facts.” Sec. 20.2031-3, Estate Tax Regs. All
relevant factors are considered, including: (1) A fair appraisal
of all assets of the partnership; (2) the demonstrated earning
capacity of the partnership; and (3) other specific factors, to
the extent applicable, relating to the valuation of corporate
stock. See id.
Respondent relies on his appraiser, Mr. Mitchell, who valued
the partnership interest under a discounted net asset value
approach. Mr. Mitchell determined the net asset value of the
partnership, applied lack of marketability and minority interest
discounts, and then applied this figure to decedent’s 27.5-
percent interest. The estate relied on its appraiser, Mr.
Bishop, who valued the partnership interest under a liquidation
approach. Mr. Bishop determined the value of decedent’s interest
by projecting the sale of Clubside’s assets over 3 years,
subtracting liabilities, applying decedent’s percentage ownership
20(...continued)
promissory notes. After adjusting for this error, Mr. Bishop
testified that the value of the partnership interest was
$289,913.
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