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Valuation Discount
As reported on the estate tax return, the value of
decedent’s 50 shares of C&L Bailey stock reflected a total 50-
percent discount. In the notice of deficiency, respondent
applied the same 50-percent total discount in valuing the stock.
In this proceeding, however, the parties’ seeming harmony on this
score has modulated to a discord of contending experts. Although
the parties and their experts agree that a 20-percent minority
discount is appropriate and that some additional marketability
discount is appropriate, they disagree about the amount of the
marketability discount. Petitioner contends it should be 40
percent (thus suggesting a combined valuation discount of 52
percent, after taking into account the agreed 20-percent minority
discount).10 Respondent, on the other hand, contends that the
marketability discount should be only 27.44 percent (thus
suggesting a combined valuation discount of 41.95 percent).
10 On brief, without explanation or discussion, petitioner
treats the agreed-upon 20-percent minority discount and the
asserted 40-percent marketability discount as being additive,
resulting in a claimed combined discount of 60 percent (20
percent + 40 percent), rather than multiplicative, which would
result in a combined discount of 52 percent (20 percent +
(40 x (1-.20) percent). Although the result reached herein does
not depend upon the distinction, we note that as a general
proposition the application of a minority discount and discount
for marketability is multiplicative rather than additive. See
Trugman, Understanding Business Valuation: A Practical Guide to
Valuing Small to Medium-Sized Businesses 286 (1998).
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