The most talked-about issue in the 2003 McCord v. Commissioner decision, from a business valuation perspective, was the Tax Court’s rejection of the pre-IPO approach in the determination of marketability discounts. Ironically—this was the least-discussed issue in the recent appellate reversal of McCord. As the IRS declined to raise the question on appeal, the 5th Circuit did not need to consider it. And yet, as the Court observes, “Our failure to address it should not...be viewed as either agreeing or disagreeing with the Majority’s determination on this point.”
So where does that leave the issue for business valuators? “I don’t think the McCord reversal has any impact on how the Tax Court will perceive expert testimony on determination of [marketability] discounts,” says William Chandler, JD, CPA/ABV, ASA, CFA (Spectrum Consulting Partners LLC, New York City). “I don’t think this decision advances us at all.”
A fellow New Yorker, Lance Hall, ASA (FMV Opinions, Inc.) is even more blunt. “The Tax Court will retain its bias against the Pre-IPO approach,” he predicts. To assess the full impact of the McCord reversal —and the future of marketability discounts, many experts are reviewing the original case as well as its criticism. For your copy of the critique by former BVU editor-in-chief Shannon Pratt, click here.
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