In the recent Estate of Giustina v. Commissioner, the Tax Court applied a 25% marketability discount to the taxpayer’s closely held timber company, but only to its DCF value and not to its asset-based result, since the latter already reflected a 40% discount for the time it would take to sell off so much timberland. This rule against double-counting “isn’t new,” says Prof. Jack Bogdanski (Lewis and Clark Law School), “but I worry that IRS agents are going to rattle this case like a saber in future battles over discounts.” In an exclusive interview with the BVUpdate, Bogdanski adds:

You’ve got to admit, it’s a case in which a limited partner’s interest got no minority discount, and only a watered-down marketability discount. The lack-of-control discount percentage was zero. Of course, that’s because of the way the base value was computed, but you can just hear the IRS saying “no discount” and citing Giustina, even in cases involving other valuation approaches—especially if timber companies are involved.

Read the complete interview, including Bogdanski’s belief that the Giusitina case could constitute yet another blow to tax affecting, in the February Business Valuation Update.