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the Court “must consider the facts of the case, the nature of the
asset to be valued, the qualifications of the expert, the
soundness of the valuation methods, the reliability of the
expert’s factual assumptions, and the persuasiveness of the
reasoning supporting the expert’s opinion”).
The values of family limited partnership interests are
difficult to determine. See Estate of Smith v. Commissioner, 57
T.C. 650, 655 (1972) (“valuation has been consistently recognized
as an inherently imprecise process”), affd. 510 F.2d 479 (2d Cir.
1975). Respondent’s expert began with the net asset value of the
FLP, then made adjustments reflecting minority and marketability
discounts. Regarding the minority discount, he compared the FLP
to closed-end mutual funds. Regarding the marketability
discount, he relied on studies relating to the value of common
stock with legal restrictions impairing transferability (i.e.,
Restricted Stock Studies) and a study relating to the value of
closely held company shares prior to initial public offerings
(i.e., Pre-IPO Study).
Problems with the expert’s analysis were not revealed until
petitioners’ counsel conducted voir dire and cross-examination.
With respect to the valuation of the FLP interests, this Court
held that, “although neither expert was extraordinary,
petitioners’ expert provided a more convincing and thorough
analysis than respondent’s expert.” Dailey v. Commissioner,
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Last modified: May 25, 2011