Restricted Securities And Illiquidity DiscountsRestricted Securities And Illiquidity Discounts
Tax cases offering guidance on the valuation of restricted securities are few and far between. The U.S. Court of Appeals for the Ninth Circuit in its 1998 McClatchy decision1 treated the shares of an affiliate decedent as restricted shares, regardless of the date-of-death transfer to a nonaffiliate estate, but didn't say how to determine the size of the illiquidity discount necessitated by the restrictions.
Espen Robak, president, Pluris Valuation Advisors LLC, New York
Tax cases offering guidance on the valuation of restricted securities are few and far between. The U.S. Court of Appeals for the Ninth Circuit in its 1998 McClatchy decision1 treated the shares of an affiliate decedent as restricted shares, regardless of the date-of-death transfer to a nonaffiliate estate, but didn't say how to determine the size of the illiquidity discount necessitated by the restrictions. Then, right before the end of 2006, the Tax Court in Gimbel2 assumed the challenge of deciding the proper illiquidity discount, not just for a very large block of stock held by an affiliate estate, but also in a situation where there was a possible repurchase of the restri...
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