- 29 -
Real estate 581,553
Oil and gas interests 215,098
Total 17,673,760
In determining the value of the gifted interest, Mr. Frazier
first (i.e., before applying any discounts) subtracts $20,000
from MIL’s NAV to reflect the class A limited partner’s $20,000
priority claim against MIL’s assets under the terms of the
partnership agreement.12 Dr. Bajaj makes no such preliminary
adjustment. We concur with Mr. Frazier’s approach in that
regard, and, therefore, we conclude that the appropriate base
amount for determining the value of the gifted interest is
$17,653,760.13
C. Minority Interest (Lack of Control) Discount
1. Introduction
A hypothetical buyer of the gifted interest would have
virtually no control over his investment. For instance, such
12 We note that the class A limited partner’s sole economic
interest in MIL consists of a guaranteed payment for the use of
such partner’s (nominal) capital. This case does not require us
to determine whether the class A limited partner is a partner of
MIL for Federal tax purposes.
13 For purposes of determining MIL’s NAV, Mr. Frazier does
not apply discounts to the real estate limited partnership
interests that McCord Brothers Partnership contributed to MIL
upon formation. Mr. Frazier did, however, discount the value of
those real estate limited partnership interests by 57.75 percent
for purposes of valuing McCord Brothers Partnership’s capital
contribution to MIL and determining the MIL partners’ percentage
interests in MIL. This case does not require us to address the
gift tax consequences, if any, of the initial capital
contributions to, and allocation of percentage interests in, MIL.
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