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suggested a lower discount than “the 30% overall average found
for all observations in the Management Planning Study.”
Mr. Herber also considered certain factors identified in
Mandelbaum v. Commissioner, T.C. Memo. 1995-255, affd. 91 F.3d
124 (3d Cir. 1996), for determining whether an appropriate
discount for lack of marketability should be higher than, the
same as, or lower than the indicated range of discounts.13 In
considering these factors, Mr. Herber observed that a lack of
marketability discount applicable to decedent’s stock interest
“would have a strong central tendency relative to the overall
studies.” Taking into account RBI’s stability of earnings and
its lower overall company risk as a bank, however, he recommended
a 25-percent discount for lack of marketability, which he
characterizes as being at the “slightly lower end” of the
indicated range of median discounts.
13 The factors identified in Mandelbaum v. Commissioner,
T.C. Memo. 1995-255, affd. 91 F.3d 124 (3d Cir. 1996), include:
(1) The value of the subject corporation’s privately traded
securities vis-a-vis its publicly traded securities; (2) the
corporation’s financial statements; (3) the corporation’s
dividend-paying capacity, its history of paying dividends, and
the amount of its prior dividends; (4) the nature of the
corporation, its history, its position in the industry, and its
economic outlook; (5) the corporation’s management; (6) the
degree of control transferred with the block of stock to be
valued; (7) any restriction on the transferability of the
corporation’s stock; (8) the length of time an investor must hold
the subject stock to realize a sufficient profit; (9) the
corporation’s redemption policy; and (10) the cost of effecting a
public offering of the stock to be valued, e.g., legal,
accounting, and underwriting fees.
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