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When valuing unlisted stock, it may be appropriate to apply a
discount for lack of marketability, a discount for a minority
interest, or a premium for control.
Discounts for lack of marketability and lack of control are
conceptually distinct when valuing stock of closely held
corporations. Estate of Newhouse v. Commissioner, supra at 249.
The distinction between the two discounts is succinctly stated in
Estate of Andrews v. Commissioner, supra at 953:
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 designed to reflect the
fact that there is no ready market for shares in a
closely held corporation. Although there may be some
overlap between these two discounts in that lack of
control may reduce marketability, it should be borne in
mind that even controlling shares in a nonpublic
corporation suffer from lack of marketability because of
the absence of a ready private placement market and the
fact that flotation costs would have to be incurred if
the corporation were to publicly offer its stock. * * *
A control premium may be appropriate when valuing a large
block of stock. A control premium represents the additional value
associated with the shareholder’s ability to control the
corporation by dictating its policies, procedures, or operations.
Estate of Chenoweth v. Commissioner, 88 T.C. 1577, 1581-1582
(1987); Rev. Rul. 59-60, 1959-1 C.B. 237, 242.
Application of a premium for control is based on the principle
that the per-share value of minority interests is less than the
per-share value of a controlling interest. Estate of Salsbury v.
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