Last week, the Fifth Circuit Court of Appeals overturned McCord v. Commissioner (2003), easily one of the most controversial tax court cases in valuation lore. Most analysts cite the 117-page McCord for its determination of lack of marketability discounts, where—in a splintered majority, with dissents by Judge Laro among others—the Tax Court rejected the taxpayer’s restricted stock analysis, conducted by William Frazier, ASA (HFBE, Houston), and endorsed the criticism of pre-IPO studies by Dr. Mukesh Bajaj.

Immediately after the issuance of the original opinion, the Business Valuation Update™ critiqued the Tax Court’s calculation and conclusions regarding marketability discounts; in an editorial opinion, Shannon Pratt (Shannon Pratt Valuations, Portland, OR) hoped that the appeal would set the record straight. Pratt also recognized that the legal issues generated as much or more controversy as the valuation issues—and indeed, the 5th Circuit focuses more on public policy and other arguments to uphold the “defined value gift clause.” The legal pundits and BV professionals have yet to register the full impact of the McCord overturn; their reactions are just starting to come in. To formulate your own, read the full-text of the 5th Circuit opinion here.