The nonmarketable investment company evaluation (NICE) method for estimating a discount for lack of marketability (DLOM) first appeared in 2006 and is included in leading valuation books. But it has not gained much traction and had not appeared in any court cases—until now, according to an article in the upcoming March issue of Business Valuation Update. The article includes a portion of the Tax Court transcript in which the IRS expert gives his opinion of the method. The method’s developer, William H. Frazier (W.H. Frazier & Co. Inc.), was one of the experts in the case. Also, the article points out that a streamlined version of the model will be out soon.

While NICE is referred to in the context of estimating a DLOM, it does not determine DLOM as a separate and distinct amount. Instead, it is an income-based method that embodies the DLOM as well as discounts for control and lack of liquidity in the discount rate and views them as investment risks. The method is not designed for operating businesses. As its name implies, it is designed specifically for determining the fair market value of equity interests in closely held investment entities, such as family limited partnerships, S corporations, and limited liability companies.