On Monday the Tax Court decided Astleford v. Commissioner (T.C. Memo 2008-128), a new gift tax case of particular interest to business appraisers in valuing family limited partnerships and “layered” real estate holding entities.  “In order to calculate the fair market value of limited partnership interests [the] petitioner transferred as gifts,” the court begins, in a nice summary of the issues:

…we must determine the fair market value of 1,187 acres of Minnesota farmland, whether a particular interest in a general partnership should be valued as a partnership interest or as an assignee interest, and the lack of control and lack of marketability discounts that should apply to the limited and to the general partnership interests.

In deciding these issues, the Tax Court (J. Swift) renders a thoughtful opinion that considers expert testimony from both the taxpayer (four experts total) and the IRS (two experts).  The court also considers the comparability data from sales of publicly traded REITs (real estate investment trusts) with data from sales of registered RELPs (real estate limited partnerships) and—while declining to declare one dataset superior to the other—it does examine which set of sales transaction data applies more to the facts and circumstances of the various Astleford family interests.  But the true “pearls” contained in the decision are the Tax Court’s acceptance of a sizeable combined discount for lack of marketability and control for a 50% general partnership interest; and a fairly substantial discount for the “tiered” ownership interests inherent in the real estate limited partnership.  Destined to be a landmark gift tax case, a complete abstract of Astleford will appear in the next (June 2008) Business Valuation Update™.