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Discounts
The parties and their experts agree that a 15-percent
minority interest discount should be applied where appropriate to
reflect the lack of control inherent in a minority interest in
HII stock. They also agree that a marketability discount is
appropriate to reflect the lack of a ready market for the HII
stock on the gift date. However, they disagree as to the
appropriate marketability discount to be applied: Mr. Heebink
applied a 30-percent discount, and Mr. Engstrom applied a 25-
percent discount.
Our review of Mr. Heebink’s report shows a potential overlap
and an apparent failure to make a proper separation between the
lack of control and the lack of marketability apparent in a
minority interest in HII. See Estate of Andrews v. Commissioner,
79 T.C. at 953 (explaining the difference between minority
interest discount and marketability discount). Mr. Heebink
states that “Minority interest shares are significantly less
marketable and liquid than controlling interest shares because
few investors are interested in minority interest investments in
closely held companies”, and he concludes:
Considering that this valuation relates to a minority
interest in a company with extensive owner involvement,
significant technical expertise, high earnings and
profitability variation, and above average automobile
industry concentration, a 30% marketability and
liquidity discount was selected for Hess Industries.
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