Feb 1, 2007 12:00 PM

By Espen Robak, president, Pluris Valuation Advisors LLC, New York

Tax cases offering guidance on the valuation of restricted securities are few and far between. The U.S. Court of Appeals for the Ninth Circuit in its 1998 McClatchy decision¹ treated the shares of an affiliate decedent as restricted shares, regardless of the date-of-death transfer to a nonaffiliate estate, but didn't say how to determine the size of the illiquidity discount necessitated by the restrictions. Then, right before the end of 2006, the Tax Court in Gimbel² assumed the challenge of deciding the proper illiquidity discount, not just for a very large block of stock held by an affiliate estate, but also in a situation where there was a possible repurchase of the restricted shares.

The court rarely decides questions of fact, including most valuation issues, en banc. And a trier-of-fact's decision is rarely better than the analysis and research presented to it. In any given case, a valuation issue might be decided differently based on which facts, research and analyses the parties present and which judge(s) is(are) on the bench. But the Tax Court's reasoning in Gimbel is a good starting point for reviewing the evidence and theory on restricted securities and illiquidity discounts.

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Topics of Interest

Estate Tax	Donor Advised Funds
GSTs	Family Offices
Private Foundations	Life Insurance
2010 Tax Act News	Industry Trends Surveys

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2011 Trust Glossary

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50 Years Ago This Month

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50 years ago, in May 1962, we featured articles such as: "Future of Canadian Trusteeship" by Arthur H. Mingay", "Training Trust Employees" by Ian M. Marr, "What is a Trust Officer?" by Eric J. Brown, and "Selling Services" by Donald I. Webb.

Conrad Teitell's Guide to Tax Benefits For Charitable Gifts

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