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projected profits will increase as a result of reduced
compensation to petitioner and his sons after the hypothetical
sale of DGA stock.14
4. Discount for Lack of Control or Minority Interest
a. Discount for Lack of Voting Power
MPI did not apply a discount for lack of control or minority
interest because it estimated the value of a minority interest of
the DGA stock at issue. However, MPI applied a 5-percent
discount for lack of voting power. Petitioner contends that this
discount for lack of voting power is warranted because the stock
at issue is nonvoting stock. Petitioner contends that nonvoting
stock is worth less than a minority interest because minority
shareholders could pool their votes to influence the S
corporation. Any anticipation of minority shareholders’ pooling
13(...continued)
favorable to respondent than MPI’s position and fairly similar to
AE’s position. One may ask whether respondent viewed Empire’s
analysis as a concession of the matter. The record makes clear
that respondent did not. At the start of the trial, petitioner’s
counsel listed valuation matters in dispute, including the
executive compensation issue. Respondent’s counsel concurred
that it remained in dispute. Thus, it is clear that both parties
understood that the executive compensation issue remained in
dispute and thus were on notice of the need to present evidence
relating to that issue.
14 We do not consider AE’s guideline company and
transaction methods because the application of those methods is
based on an incorrect assumption that adjustments must be made
for executive compensation. Thus, AE’s guideline companies and
transaction methods are not comparable to DGA and its methods.
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