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Belle Fourche stock was $120 per share (or $57,120 per each 1-
percent interest sold) on August 2, 1971. The freely traded
value for each 8-percent partnership interest in True Oil was
$535,000 on August 1, 1973.
SRC then examined average marketability discounts of
comparable companies to determine the appropriate discount from
freely traded value. In the Belle Fourche appraisal, the average
marketability discount for investment companies48 subject to
investment letter restrictions ranged from 15 to over 50 percent,
with an average discount of 33 percent. In the True Oil
appraisal, which was performed 2 years later, the average
marketability discount was within the same range, with an average
discount of 34 percent.
SRC ultimately disregarded the average marketability
discount information and opined that the buy-sell restrictions in
the True Oil and Belle Fourche agreements absolutely precluded
sales in the public market. As a result, SRC limited fair market
value to the buy-sell formula prices, which amounted to discounts
of 90 percent and 68 percent, respectively, from the freely
traded value of the True Oil and Belle Fourche transferred
interests. SRC effectively treated the buy-sell agreements as if
they controlled Federal gift tax value; rather than solely as
48Described as public companies that as a policy invested in
stock subject to investment letter restrictions. Investment
letter restrictions prevented the holder from selling shares to
the public for a fixed period of time (generally 2 to 3 years).
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