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Appeals Court Upholds Value of Estate’s Interest in Closely Held Company May Be Reduced by Entire Built-In Capital Gains Tax Liability

The Eleventh Circuit Court of Appeals has upheld an estate’s value of a decedent’s interest in a closely-held company that was determined by reducing the company’s value by the entire amount of the built-in capital gains tax liability.  In this case, the decedent owned a 6.44% interest in a closely-held company, which at the time of the decedent’s death, had $51 million in potential tax liability.

In valuing the decedent’s interest, the estate reduced the value, dollar-for-dollar, by the amount of the liability, as done by courts in previous holdings. The Court upheld this method stating that it was logical to assume that the liquidation of the decedent’s interest occurred on the date of the decedent’s death.    The value was also given a 10% lack of control discount and a 15% lack of marketability discount.

Editor’s Comment

There are many different methods for valuing an interest in a company, depending on the particular set of circumstances involved.  It can be a difficult process to navigate, which is why such a job is usually performed by professionals.  The professionals at The Center have vast experience in valuing closely-held companies.  Contact the Center for all of your valuation questions and needs.

By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors