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6. Discount Rate
The parties generally disagree as to the appropriate
discount rate to apply. Petitioner claims that the appropriate
rate is 15 percent while respondent contends that it is 18.96
percent. The parties rely on expert reports and our opinion in
Gianaris v. Commissioner, T.C. Memo. 1992-642.
In Gianaris, we stated that the experts in that case had
testified and the taxpayers had not challenged that long-term
U.S. Government bonds yielded, on average, about 11.5 or 11.6
percent in 1980 and 13 percent in 1982. We felt that a premium,
above the benchmark rate of return on U.S. Government debt, was
necessary to compensate for the additional risk involved in the
partnerships. We stated that profit-seeking investors in similar
EMS tax shelters would reasonably have required a rate of return
of no less than 15 percent. However, for purposes of making our
calculations, we assumed discount rates equal to the rate of
return on U.S. Government debt because if the investments did not
show profit at those interest rates, then they would not show
profit at the higher rates it could be assumed a profit-seeking
investor would demand.
Petitioner relies in part on our statements in Gianaris as a
basis for his contention that the appropriate discount rate is 15
percent. In further support of his position, petitioner
presented the report and testimony of Douglas J. Horvey (Mr.
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