Wills and Trusts

Wyatt, Tarrant & Combs, LLP

7.5% Discount for Lack of Marketability

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In Estate of John F. Koons v. Commissioner, T.C. Memo 2013-94, Judge Morrison agreed with the government’s expert and applied a 7.5% discount for lack of marketability for an LLC holding mostly liquid assets. At date of death, the decedent’s revocable trust owned a 46.94% voting interest in an LLC and an overall 50.50% interest. However, certain redemptions had been agreed to by the decedent’s children and did in fact occur within about a year after the decedent’s death; those redemptions gave the revocable trust a 70.42% voting majority. The government’s expert for the most part ignored the restrictions in the LLC regarding transfers and distributions, concluding that in fact any onerous restriction could be removed by the trust. On the other hand, the LLC did impose a barrier between the trust and the LLC’s assets which justified the 7.5% discount.  The taxpayer’s expert arrived at a 31.7% discount by comparing the LLC to 88 publicly traded companies. Among the problems the court found with the taxpayer’s expert was that the size of the blocks of stock in the studies was much smaller than the LLC interest owned by the revocable trust.

Turney P. Berry
Louisville, Kentucky

Author: robmalinesq

I am an estate planning and probate attorney in Memphis, Tennessee.

Leave a reply. Please note that although this blog may be helpful in informing clients and others who have an interest in information privacy and security, it is not intended to be legal advice. The information on this blog also should not be relied upon to form an attorney-client relationship.

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