IRS presents new model on transfers of fractional interests

BVWireIssue #110-2
November 9, 2011

When we first broke the news about the IRS’s fractional interest model at the most recent ASA IRS National Symposium last spring, the halls were buzzing with appraisers’ debate, discussion, and even dismay. As the BVWire reported, the “minority premium model” takes fractional interest calculations through several levels of minority vs. majority ownership, and concludes that even when the owners are equally split, the 50% interest may not warrant a fractional interest discount any greater than 30%.

But then—why do empirical market data suggest that fractional interests routinely trade at discounts of 30% and higher? Aren’t the facts and circumstances of many such holdings much more complicated than the IRS model suggests? But consider this question: Would a court ever be persuaded that, for example, a 99% owner would be willing to sell at a 30% discount if he can buy out the 1% owner at the equivalent of a 1%-2% discount?

Get the answers to these and many more questions in Part IV, the last session of BVR’s Tax Summit: Valuing a Majority Fractional Interest. The event features Neil Mills-Mazer (Internal Revenue Service), who will introduce and describe his controversial model this Friday, Nov. 11.

Please let us know if you have any comments about this article or enhancements you would like to see.