- 12 -
used a 25-percent minority discount for valuing the interests in
KLLP.
b. Respondent’s Expert
Dr. Widmer calculated a minority discount of 12 percent by
calculating an arithmetic mean of the entire data set for closed-
end funds, not only the fourth quartile. Dr. Widmer determined
that it is essential to use the whole array of closed-end funds
as this calculation will remove the marketability element in the
discounts or premiums.
3. Conclusion
We are not persuaded that ATI’s exclusive use of the fourth
quartile of closed-end funds is proper. “While we have utilized
small samples in other valuation contexts, we have also
recognized the basic premise that ‘[a]s similarity to the company
to be valued decreases, the number of required comparables
increases’.” McCord v. Commissioner, 120 T.C. 358, 384 (2003)
(quoting Estate of Heck v. Commissioner, T.C. Memo. 2002-34); see
also Lappo v. Commissioner, T.C. Memo. 2003-258. We are also not
persuaded by ATI’s analyses of PPI’s studies regarding minority
discounts as ATI admits that these discounts contain some element
of discount for lack of marketability, and therefore these
studies result in an overstatement of the minority discount.
In determining the minority discount for KLLP, we believe a
correct analysis would be to take the arithmetic mean of all of
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