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C. Minority Interest Discount
In estimating the fair market value of a noncontrolling
interest in a closely held business entity, it may be appropriate
to decrease NAV to reflect lack of control inherent in the
interest. See, e.g., Estate of Andrews v. Commissioner, 79 T.C.
938, 953 (1982).
1. Marketable Securities
As previously indicated, with respect to the marketable
securities component of the partnership interests, petitioner’s
expert recommends a 7.5-percent minority interest discount,
whereas respondent’s expert recommends an 8.5-percent minority
interest discount. The parties agree that the difference is not
significant. At trial, petitioner agreed to use respondent’s
slightly higher net asset values for the marketable securities.
Out of fairness to petitioner, we also use Dr. Shapiro’s slightly
higher 8.5-percent minority interest discount rate.
2. Real Estate
a. Selection of Guideline Companies
Both experts agree that publicly traded real estate
investment trusts (REITs) provide an appropriate starting point
for determining the minority interest discount with regard to the
partnership’s real estate holdings. They disagree, however, on
which REITs should be used for comparison and on the analysis of
the REITs data.
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Last modified: May 25, 2011