- 37 -
resulted in Dr. Bajaj’s determination of an overall 35-percent
discount, which he treats, in total, as a marketability discount.
Dr. Spiro determined a basic 15-percent liquidity
discount,12 increased by an additional 10 percent for risks
associated with Korbel’s status as an S corporation. Thus, Dr.
Spiro’s total liquidity discount is 25 percent, which he applies
to the values that he determined under his market and income
approaches (i.e., values exclusive of the value of nonoperating
assets). Dr. Spiro applied specific, separate discounts to
nonoperating assets: A 25-percent minority discount followed by
his overall 25-percent liquidity discount applicable to “excess
land”13 and a 25-percent minority discount applicable to “excess
cash”.
b. Marketability Versus Minority Discounts
We have recognized that there is a distinction between a
discount for lack of marketability and a discount for the
minority position of the interest to be valued. As we stated in
Estate of Andrews v. Commissioner, 79 T.C. 938, 953 (1982):
The minority shareholder discount is designed to
reflect the decreased value of shares that do not
convey control of a closely held corporation. The lack
of marketability discount, on the other hand, is
12 We interpret Dr. Bajaj’s references to a “marketability”
discount and Dr. Spiro’s references to a “liquidity” discount as
references to the same type of discount.
13 Because Dr. Spiro applies the two discounts
consecutively, the total discount is 43.75 percent: 0.25 + (0.25
x 0.75) = 0.4375.
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