“There always seems to be one issue that our profession is wrestling with,” said Jim Hitchner (Financial Valuation Advisors) in opening his session on discounts for lack of marketability at last week’s AICPA National BV Conference in Las Vegas. Tax-affecting is still important, as is cost of capital—but DLOM “seems to be ahead of all the others,” he said. Currently, there are over 50 DLOM models. The IRS DLOM Job Aid discusses many in detail, concluding that “the BV profession does not identify acceptable or unacceptable methods.” Individual practitioners have their own preferences, Hitchner observed, and “frequently disagree as to the best approach.” In fact, sometimes they “vehemently” disagree.

Question from the audience: “Does the proliferation of DLOM models and lack of consensus mean that DLOM methods could fail under Daubert, particularly its requirement for ‘common acceptance by practitioners in the field’?” “No,” Hitchner said. “There’s some risk under Daubert but a lot of these methods have been used for years.” Added co-presenter Shannon Pratt (SPV), “There’s a court case that says just because something isn’t prevalent in the [professional] community doesn’t mean you can’t use it.”

However, these methods are prevalent, and “frequent use” may not always equal “common acceptance.” Consider what happened to the “25% rule of thumb” after years of use by patent infringement experts and passive acceptance by the courts. And consider these comments from U.S. Tax Court judges at BVR’s recent Tax Summit:

• “The problem I have personally is that most valuation testimony in Tax Court does not meet the Daubert standard,” said Judge David Laro. “Leading experts in the field have conceded that [frequently used BV methods] are not Daubert-tested, Laro said. “That day is coming.”

•  “You must be able to test your results,” observed Judge Mary Ann Cohen.  

• DLOM is just one area “where you see experts going into advocacy,” said Judge Julian Jacobs. “It can get a little absurd, depending on the circumstances.”