The Applicability of Discounts for Lack of Marketability on Controlling Ownership Interests
The applicability of a discount for lack of marketability (“DLOM”) in the valuation of controlling ownership interests of closely held companies has been debated in various courtrooms across the United States. Typically, an analyst determines whether a DLOM is applicable when valuing a controlling interest based on qualitative and quantitative factors. However, judicial acceptance of applying a DLOM on controlling interests has varied with each state, and it is important that the valuation analyst be aware of applicable case law within the relevant governing jurisdiction regarding this issue.
Higher Interest Rates and Tax Exemptions May Maximize Benefits in Gift and Estate Tax Planning
Lower business values driven by higher interest rates and higher tax exemptions included in the Tax Cuts and Jobs Act provide high-net-worth taxpayers with an opportunity to transfer assets without incurring a significant gift and estate tax liability.
Key Person Considerations When Valuing Private Companies in a Gift and Estate Tax Context
In a gift and estate tax context, the valuation analyst may consider potential company dependence on one or two key individuals when estimating the value of a private company or an interest in a private company. This dependence is generally referred to as “key person risk,” which is recognized within the valuation profession and by the U.S. Tax Court as a relevant company-specific risk characteristic. This company-specific risk characteristic can be accounted for in many ways within a valuation analysis for gift and estate tax purposes.
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