<p class="MsoBodyText2" style="margin: 0in 34.2pt 0pt 0.5in;"><span style="font-size: 10pt;"><span style="font-family: Times New Roman;">The discounts for lack of marketability and minority interest are crucial in reducing the value of transferred interests of closely held companies for estate and gift tax purposes.<span style="mso-spacerun: yes;"> </span>Because the current highest marginal estate and gift tax rate is 49%, there is a strong inducement for CPAs, Attorneys, Investment Bankers, Financial Planners, and others who value these transfers to accurately gauge the judicially allowed discounts for lack of marketability and minority interests in the valuation of closely held stock.<span style="mso-spacerun: yes;"> </span>This study examines the relationship between Tax Court determined values for lack of marketability and minority discounts to closely held stock from the compromise percentages.<span style="mso-spacerun: yes;"> </span>Compromise percentage is defined as the mean of the percentage presented by the adversarial parties, the taxpayer, and the IRS, in a judicial action.<span style="mso-spacerun: yes;"> </span>Additionally, this relationship is examined across industry classifications.<span style="mso-spacerun: yes;"> </span>The period investigated covers January 1, 1973 through December 31, 2002.<span style="mso-spacerun: yes;"> </span>Both regular and memorandum decisions by the Tax Court are analyzed over this thirty-year span.<span style="mso-spacerun: yes;"> </span>Chi-square analysis is used to determine that the Tax Court determined values are not significantly different than the compromise percentages.<span style="mso-spacerun: yes;"> </span>Furthermore, this finding does not vary across industries.<span style="mso-spacerun: yes;"> </span>Regression and chi-squared results are augmented with descriptive statistics.</span></span></p>
An Empirical Investigation Of The Minority Interest And Marketability Discounts In Valuation Of Closely Held Stock For Estate And Gift Tax Purposes