Chapter 1
1. Appraisal Institute, The Appraisal of Real Estate, 14th ed., Appraisal Institute, Chicago, 2013, p. 82.
2. Ibid., p. 401.
Chapter 4
1. Emergency Wetlands Resources Act of 1986, 16 U.S.C.§§ 3901–3932, November 10, 1986, as amended 1988 and 1992, Office of the Law Revision Counsel, 2005.
2. L. M. Cowardin, V. Carter, F. C. Golet, and E. T. LaRoe, Classification of Wetlands and Deepwater Habitats of the United States, U.S. Department of the Interior, Fish and Wildlife Service, Washington, D.C., 1979, p. 131.
3. Ibid.
4. Ibid.
5. The regulatory text discussing this permitting program (40 CFR Parts 230-233) can be found at http://ecfr.gpoaccess.gov under “Title 40: Protection of the Environment.”
6. U.S. Army Corps of Engineers, 2006.
7. Appraisal Institute, The Dictionary of Real Estate Appraisal, 4th ed., Appraisal Institute, Chicago, 2002.
8. Merriam-Webster, Merriam-Webster’s Collegiate Dictionary, 11th ed., Merriam-Webster, Springfield, MA, 2003.
9. Appraisal Institute, Dictionary of Real Estate Appraisal.
10. Appraisal Institute, Uniform Appraisal Standards for Federal Land Acquisitions, Appraisal Institute, Chicago, 2000, p. 13.
11. California Jury Instructions: Civil (Book of Approved Jury Instructions), 9th ed., BAJI 11.73, “Fair Market Value—Defined.”
12. Appraisal Institute, Uniform Appraisal Standards for Federal Land Acquisitions, p. 47.
13. Appraisal Institute, Uniform Appraisal Standards for Federal Land Acquisitions, p. 18.
Chapter 5
1. Appraisal Institute, The Dictionary of Real Estate Appraisal, 4th ed., Appraisal Institute, Chicago, 2002.
2. Ibid.
3. Ibid.
4. The complete Freddie Mac Form 71A can be found at http://www.freddiemac.com/multifamily/mf_forms/pdf/f71a.pdf.
Chapter 7
1. Marshall & Swift Publications Company, Marshall Valuation Service, 2000 ed., Marshall & Swift Publications Company, Los Angeles, 2000.
2. Appraisal Institute, The Dictionary of Real Estate Appraisal, 4th ed., Appraisal Institute, Chicago, 2002.
3. Ibid.; and Marshall & Swift, Marshall Valuation Service, 2000 ed.
4. West’s Encyclopedia of American Law, 2nd ed., Thompson Gale, Detroit, 2005.
Chapter 9
1. This information is used with permission and is similar to information found in John Lifflander, Fundamentals of Industrial Valuation, International Association of Assessing Officers (IAAO), Chicago, 2007.
2. Merriam-Webster, Merriam-Webster’s Collegiate Dictionary, 11th ed., Merriam-Webster, Springfield, MA, 2003.
3. American Society of Appraisers, Appraising Machinery and Equipment, McGraw-Hill, New York, 1989, p. 97.
4. American Society of Appraisers, Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets, 2d ed., American Society of Appraisers, Herndon, VA, 2005.
Chapter 10
1. American Society of Appraisers, Valuing Machinery and Equipment: The Fundamentals of Appraising Machinery and Technical Assets, 2d ed., American Society of Appraisers, Herndon, VA, 2005, p. 68.
2. American Society of Appraisers, “Valuing Machinery and Equipment,” Machinery and Technical Specialties Committee of the American Society of Appraisers, American Society of Appraisers, Herndon, VA, 2000, p. 5.
3. Ibid., p. 175.
4. John Lifflander, Fundamentals of Industrial Valuation, International Association of Assessing Officers, Kansas City, 2007, p. 134.
5. Ibid., pp. 127, 128.
6. Ibid., pp. 118–119.
7. Ibid., pp. 129–130.
Chapter 13
1. See, e.g., Matter of Slant/Fin. Corp. v. The Chicago Corp. (N.Y. Sup. Ct. Oct. 5, 1995), aff’d 236 A.D.2d 547, 654 N.Y.S.2d 627 (N.Y. App. Div. Feb. 18, 1997); and Le Beau v. M.G. Bancorporation, Inc., 1998 Del. Ch. LEXIS 9, 1998 WL 44993 (Del. Ch. Jan. 29, 1998).
2. For a thorough discussion of definitions of value, see Jay Fishman et al., Standards of Value: Theory and Applications, 2nd ed., Wiley, New York, 2013.
3. 26 CFR 20.2031-3. See also Rev. Rul. 59-60.
4. For a thorough discussion of this issue, see Richard M. Wise, “The Effect of Special Interest Purchases on Fair Market Value in Canada,” American Society of Appraisers, Business Valuation Review, vol. 22, no. 4 (December 2003), pp. 196–202.
5. Appraisal Foundation, Uniform Standards of Professional Appraisal Practice (USPAP), U-3, 2014, pp. 98–111.
6. Pabst Brewing Co. v. Commissioner, T.C. Memo. 1996-506 (1996).
7. SFAS 157, Fair Value Measurements.
8. For a complete listing of states’ dissenters’ rights statutes, see www.BVLibrary.com.
9. Alabama, Arizona, Arkansas, Colorado, Hawaii, Indiana, Kentucky, Massachusetts, Michigan, Missouri, Montana, Oregon, South Carolina, Vermont, Washington and, Wisconsin.
10. Connecticut, District of Columbia, Idaho, Iowa, Maine, Mississippi, Nevada, New Hampshire, North Carolina, South Dakota, Virginia, and West Virginia.
11. Georgia, New Mexico, Rhode Island, Tennessee, and Utah.
12. Delaware, Kansas, Oklahoma, and Pennsylvania.
13. See American Bar Association, Model Business Corporation Act 2007, 4th ed., 2008.
14. See, e.g., Lawson Mardon Wheaton, Inc. v. Smith, 160 N.J. 383, 734 A.2d 738 (1999); and Balsamides v. Protameen Chemicals, Inc., 160 N.J. 352, 734 A.2d 721 (1999).
15. This section is excerpted from Shannon P. Pratt and Alina V. Niculita, Valuing a Business, 5th ed., New York, McGraw Hill, 2008.
16. Compare IFRS 3 defining fair value as “the amount for which an asset could be exchanged or a liability settled between knowledgeable, willing parties in an arm’s-length transaction.”
17. Scott Beauchene and Robert Duffy, “Getting Ready for 409A: Some Practical Considerations,” Business Valuation Update, May 2007.
18. See Appraisal Institute, The Appraisal of Real Estate 26, 12th ed., The Appraisal Institute, Chicago 2001.
19. W. W. Cooper and Yuri Ijiri, eds., Kohler’s Dictionary for Accountants 285, 6th ed., Prentice-Hall, Upper Saddle River, NJ, 1983. Reprinted by permission of Prentice-Hall.
20. Ibid., p. 228.
21. James H. Lorie, et al., The Stock Market: Theories and Evidence, 2nd ed., Irwin, Willowbrook, IL 1984.
22. American Society of Appraisers Business Valuation Standards 15, January 1995.
23. IPR&D generally refers to R&D acquired in an acquisition.
24. See, e.g., Gaydos v. Gaydos, 693 A.2d 1368 (Pa. Super. Ct. 1997).
25. IRC Section 2031.
26. Active Wear, Inc. v. Parkdale Mills, Inc., 331 B.R. 669 (W.D. Va. 2005) (defining fair market value as the “value the debtor/bankrupt could receive for the property in a liquidation sale”).
27. Prop. DOL Reg. §2510.3-18(b)(2)(ii) includes a two-part test: (1) the price paid must reflect the fair market value of the asset, and (2) the trustee/fiduciaries must conduct a careful and independent investigation of the circumstances prevailing at the time of the investment.
28. See, e.g., Estate of Andrews v. Commissioner, 79 T.C. 938 (1982).
29. Arthur J. Shartsis, “Dissolution Actions Yield Less than Fair Market Enterprise Value,” Judges & Lawyers Business Valuation Update, January 1999, pp. 5–7.
30. Pratt and Niculita, Valuing a Business, p. 47.
31. Ibid.
32. See, e.g., Foltz v. U.S. News & World Report, Inc., 106 F.R.D. 338 (D.C. Cir. 1984), appealed and affirmed.
Chapter 14
1. Additional guidance may be found in Shannon P. Pratt, Business Valuation Body of Knowledge, 2nd ed., Wiley, New York, 2003.
2. American Society of Appraisers Business Valuation Standards.
Chapter 15
1. Richard A. Brealey and Stewart C. Myers, Principles of Corporate Finance, 7th ed., McGraw-Hill Irwin, New York, 2003, p. 75.
2. See, e.g., Guiffre v. Baker, 1996 WL 535254, 1996 Ohio App. LEXIS 3673 (Ohio Ct. App. 1996); Sergi v. Sergi, 1996 WL 425914, 1996 Ohio App. LEXIS 3241 (Ohio Ct. App. 1996) (the courts in those cases accepted the DCF method over the excess earnings method); and Howell v. Howell, 523 S.E.2d 514 (Va. Ct. App. 2000).
3. See, e.g., Shooltz v. Shooltz, 498 S.E.2d 437 (Va. Ct. App. 1998).
4. For detailed procedures for analyzing and valuing debt instruments and preferred stock, see Shannon Pratt, with Alina Niculita, Valuing a Business, 5th ed., McGraw Hill, New York, 2007, pp. 547–562, 563–584.
5. For more detail about these and other Morningstar data and arguments regarding their use, see Michael W. Barad and Tara McDowell, “Using Morningstar Cost of Capital Data,” in Shannon Pratt and Roger Grabowski, Cost of Capital: Applications and Examples, 3rd ed., Wiley, New York, 2008. See also Stocks, Bonds, Bills & Inflation, Valuation Edition, published annually by Morningstar.
6. In Duff & Phelps LLC Risk Premium Report, published annually and available at http://corporate.morningstar.com/ib/html/home.htm and www.bvresources.com.
7. The iterative process is described in Shannon Pratt and Roger Grabowski, Cost of Capital: Applications and Examples, 3rd ed., Wiley, New York, 2008. A shortcut for a reasonable estimate is presented by Frank Evans, “Debt and Equity Weightings in WACC,” CPA Expert, Fall 1998, pp. 4–5, abstracted in Shannon Pratt’s Business Valuation Update, March 1999, p. 11.
8. The formulas and examples are described in Pratt and Grabowski, Cost of Capital, app. 10A, p. 143.
9. Proof of the accuracy of this method is presented in Todd A. Kaltman, “Capitalization Using a Mid-Year Convention,” Business Valuation Review, December 1995, pp. 178–182.
10. It is, of course, appropriate to make calculations adjusting for uneven but predictable cash flow patterns, for example, a toy retailer at Christmas or H&R Block in April, but such models usually are more complex to create.
Chapter 16
1. See Shannon Pratt and Roger Grabowski, “The Private Company Discount” (ch. 24), in Cost of Capital: Applications and Examples, 5th ed., John Wiley, New York., 2014.
2. Daniel W. Bielinski, “The Comparable Company Approach: Measuring the True Value of Privately Held Firms,” Corporate Cashflow Magazine, October 1990, pp. 64–66.
3. Rev. Rul. 59-60, 1959-1 C.B. 237, Section 4(h).
4. Estate of Gallo v. Commissioner, 50 T.C.M. 470 (1985).
5. Estate of Hall v. Commissioner, 92 T.C. 312 (1989).
6. In “Bridging the Gap Between Public and Private Market Multiples,” Business Valuation Review, September 1998, pp. 95–101, Richard W. Goeldner II suggests going as far as quantifying all these factors in terms of their impact on risk and potential future growth, and he suggests that it is not unreasonable for private company multiples to be half of observed public company multiples, or even less.
Chapter 17
1. Conceivably, certain intangibles, such as intellectual property, could be identified and valued separately, but in practice this is rarely done.
2. Tax cases have begun to recognize all or some portion of this liability. See, e.g., Estate of Davis v. Commissioner, 110 T.C. 530 (1998); Eisenberg v. Commissioner, T.C.M. 1997-483, 74 T.C.M. (CCH) 1046 (1997); and Estate of Simplot v. Commissioner, 112 T.C. No. 13, 1999 WL 152610 (1999). Family law courts have been reluctant to recognize this liability unless sale is imminent. See, e.g., Granger v. Granger, 579 N.E.2d 1319 (Ind. Ct. App. 1991); In re Marriage of Hay, 907 P.2d 334 (Wash. Ct. App. 1995); and Crooker v. Crooker, 432 A.2d 1293 (Me. 1981).
3. Shooltz v. Shooltz, 27 Va. App. 264, 498 S.E.2d 437 (1998).
Chapter 18
1. Glenn Desmond, Handbook of Small Business Valuation Formulas, 3rd ed., Valuation Press, 1993, p. 3.
2. American Society of Appraisers, Business Valuation Standards.
3. Harriet Cohen, “Using Rules on Thumb in Valuation,” in Gregg Herman, ed., 101+ Practical Solutions for the Family Lawyer, 2d ed., American Bar Association, Chicago, 2003.
4. Bostwick v. Bostwick, 1991 WL 42628 (Del. Fam. Ct. 1991), quoted in Robert D. Feder, Valuation Strategies in Divorce, 4th ed., 1997, Wiley, New York, p. 451. See also, e.g., Bolan v. Bolan, 32 Ark. App. 65, 796 S.W.2d 358 (1990) and Young v. Young, 600 So. 2d 1140 (Fla. Dist. Ct. App. 1992).
5. Carter v. Carter, 1990 WL 145736 (Ohio App. 11 Dist. 1990).
Chapter 19
1. This chapter relies extensively on the work of Noah J. Gordon, legal counsel for Shannon Pratt Valuations, Inc. Gordon is a regular contributor to valuation and legal publications.
2. Hon. David Laro, “Judge Laro’s Views on ‘Fair Market Value,’” Judges & Lawyers Business Valuation Update, May 1999, pp. 1–3. Full text of address before the AICPA National Business Valuation Conference (November 17, 1998) available on www.BVLibrary.com.
3. Ahmanson Foundation v. United States, 674 F.2d 761 (9th Cir. 1981).
4. Estate of Simplot v. Comm’r, 249 F.3d 1191 (9th Cir. 2001).
5. For an extensive discussion on the nuances of fair market value in the federal tax valuation context, see Jay E. Fishman, Shannon P. Pratt, and William J. Morrison, Standards of Value: Theory and Applications, 2nd ed., Wiley, New York, 2013, pp. 36–79.
6. Rev. Rul. 59-60.
7. Hon. David Laro and Shannon P. Pratt, Business Valuation and Federal Taxes: Procedure, Law, and Perspective, Wiley, Hoboken, NJ, 2011, p. 9.
8. Central Trust Co. v. United States, 305 F.2d 393 (Ct. Cl. 1962).
9. Foltz v. U.S. News and World Report, Inc., 106 F.R.D. 338 (D.C. Cir. 1984).
10. Estate of Furman v. Comm’r, T.C. Memo. 1998-157 (1998).
11. Bank One Corporation v. Comm’r, 120 T.C. 174, 2003 U.S. Tax Ct. LEXIS 13, 120 T.C. No. 11 (2003), rev’d and remanded 2006 U.S. App. LEXIS 20430 (7th Cir. 2006).
12. Central Trust Co. v. United States, 305 F.2d 393 (Ct. Cl. 1962).
13. Estate of Kaufman v. Comm’r, T.C. Memo. 1999-119 (1999).
14. Moore v. Comm’r, T.C. Memo. 1991-546 (1991).
15. Estate of Lehmann v. Comm’r, T.C. Memo. 1997-392 (1997).
16. See, e.g., Walter v. Duffy, 287 F. 41 (3d Cir. 1923).
17. Roger J. Grabowski, “Identifying Pool of Willing Buyers May Introduce Synergy to Fair Market Value,” Shannon Pratt’s Business Valuation Update, Business Valuation Resources, vol. 7, no. 4, April 2001.
18. See, e.g., IRS Treasury Regulations, Estate Tax Regulation § 20.2031-1; and IRS Treasury Regulations, Gift Tax Regulation 25.2512-1.
19. Leibowitz v. Comm’r, T.C. Memo. 1997-243 (1997).
20. Estate of Simplot v. Comm’r, 249 F.3d 1191 (9th Cir. 2001).
21. Estate of Berg v. Comm’r, T.C. Memo. 1991-279 (1991).
22. Kohler v. Comm’r, T.C. Memo. 2006-152 (2006).
23. Estate of Thompson v. Comm’r, T.C. Memo. 2004-174 (2004).
24. Caracci v. Comm’r, 118 T.C. 379, 118 T.C. No. 25, 2002 U.S. Tax Ct. LEXIS 25 (2002).
25. Estate of Josephine Thompson v. Comm’r, T.C. Memo. 2004-174 (2004), aff’d, 499 F.3d 129 (2d Cir. 2007).
26. Tax Ct. Rule 142.
27. Estate of Kaufman v. Comm’r, T.C. Memo. 1999-119 (1999).
28. Kohler v. Comm’r, T.C. Memo. 2006-152, 2006 Tax Ct. Memo. LEXIS 156 (2006).
29. Estate of Josephine Thompson v. Comm’r, 499 F.3d 129 (2d Cir. 2007).
30. IRC Section 6501(c)(9).
31. 64 Federal Register 67767 (December 3, 1999).
32. For a full discussion of the final regulations, see “IRS Adequate Disclosure Final Regulations Respond to Extensive Comments,” Judges & Lawyers Business Valuation Update, January 2000, 1, pp. 4–5.
33. Estate of Bruce v. Comm’r, T.C. Memo. 1993-244 (1993).
34. Kohler v. Comm’r, T.C. Memo. 2006-152, 2006 Tax Ct. Memo. LEXIS 156 (2006).
35. Polack v. Comm’r, T.C. Memo. 2002-145, aff’d, 366 F.3d 608 (8th Cir. 2004).
36. Black’s Law Dictionary 1726, 10th ed., Thomson West, New York, 2014.
37. Estate of Bennett v. Comm’r, T.C. Memo. 1993-34 (1993).
38. Morrissey v. Comm’r, 243 F.3d 1145 (9th Cir. 2001).
39. Shannon P. Pratt with Alina Niculita, Valuing a Business: The Analysis and Appraisal of Closely Held Companies, 5th ed., McGraw-Hill, New York, 2008, p. 663.
40. Estate of Kaufman v. Comm’r, T.C. Memo. 1999-119 (1999).
41. Hess v. Comm’r, T.C. Memo. 2003-251 (2003).
42. Estate of Leichter v. Comm’r, T.C. Memo. 2003-66 (2003).
43. Estate of Brookshire v. Comm’r, T.C. Memo. 1998-365 (1998).
44. Estate of Gallo v. Comm’r, T.C. Memo. 1985-363 (1985).
45. Estate of Hall v. Comm’r, 92 T.C. 312 (1989).
46. Estate of Heck v. Comm’r, T.C. Memo. 2002-34 (2002).
47. Hess v. Comm’r, T.C. Memo. 2003-251 (2003).
48. Estate of Watts v. Comm’r, T.C. Memo. 1985-595 (1985), aff’d, 823 F.3d 483 (11th Cir. 1987).
49. Shannon Pratt, Cost of Capital 157 (1998).
50. Morton v. Comm’r, T.C. Memo. 1997-166 (1997).
51. Estate of Hendrickson v. Comm’r, T.C. Memo. 1999-278,1999 Tax Ct. Memo. LEXIS 318 (1999).
52. Estate of Freeman v. Comm’r, T.C. Memo. 1996-372, 1996 WL 453872 (1996).
53. Estate of Jung v. Comm’r, 101 T.C. 412 (1993).
54. Rakow v. Comm’r, T.C. Memo. 1999-177.
55. Estate of Lehmann v. Comm’r, T.C. Memo. 1997-392 (1997).
56. Estate of Bennett v. Comm’r, T.C. Memo. 1993-34 (1993); and Estate of Hatchett v. Comm’r, T.C. Memo. 1989-637 (1989).
57. Estate of Jameson v. Comm’r, T.C. Memo. 1999-43 (1999), vacated and remanded by 267 F.3d 366 (5th Cir. 2001).
58. For a discussion of valuation and related tax issues with regard to family limited partnerships, see Shannon P. Pratt with Alina Niculita, Valuing a Business: The Analysis and Appraisal of Closely Held Companies, 5th ed., McGraw-Hill, New York, 2008, pp. 689–699.
59. For the most extensive sets of case citations and discussions of discounts and premiums in federal tax cases, see John A. Bodganski, Federal Tax Valuation 4–1 to 4–121, together with the 2000 Cumulative Supplement No. 1, 54–1 to 54–63. (1996).
60. See, e.g., Estate of Gallo v. Comm’r, T.C. Memo. 1985-363 (1985) (36%); and Estate of Hall v. Comm’r, 92 T.C. 312 (1989) (36%).
61. See, e.g., Brookshire v. Comm’r, T.C. Memo. 1998-365 (1998) (40%).
62. Huber v. Comm’r, T.C. Memo. 2006-96 (2006).
63. Estate of Gallo v. Comm’r, T.C. Memo. 1985-363 (1985).
64. Estate of Hall v. Comm’r, 92 T.C. 312 (1989).
65. See, e.g., Mandelbaum v. Comm’r, T.C. Memo. 1995-255 (1995); Estate of Davis v. Comm’r, 110 T.C. 530 (1998); Estate of Williams v. Comm’r, T.C. Memo. 1998-59 (1998); Estate of Brookshire, T.C. Memo. 1998-365 (1998); and Okerlund v. United States, 53 Fed. Cl. 341 (Fed. Ct. Cl. 2002), aff’d 365 F.3d 1044 (Fed. Cir. 2004).
66. Estate of Jelke v. Comm’r, T.C. Memo. 2005-131 (2005).
67. McCord v. Comm’r, 120 T.C. 358 (2003), rev’d, 461 F.3d 614 (5th Cir. 2006).
68. Estate of Kelly v. Comm’r, T.C. Memo. 2005-235 (2005).
69. Lappo v. Comm’r, T.C. Memo. 2003-258 (2003).
70. Peracchio v. Comm’r, T.C. Memo. 2003-280 (2003).
71. Estate of Deputy v. Comm’r, T.C. Memo. 2003-176 (2003).
72. Janda v. Comm’r, T.C. Memo. 2001-24 (2001).
73. Temple v. United States, 2006 U.S. Dist LEXIS 16171 (E.D. Tex. 2006).
74. Robertson v. United States, 2006 U.S. Dist. LEXIS 1167 (N.D. Tex. 2006).
75. Estate of Green v. Comm’r, T.C. Memo. 2003-384.
76. Litman v. United States, 78 Fed. Cl. 90 (Claims Ct. 2007).
77. For a discussion of these sources of empirical data supporting a discount for lack of marketability, see Scott Beauchene and Robert Duffy, “Getting Ready for 409A: Some Practical Considerations,” Business Valuation Update, May 2007, pp. 1–5; and AICPA National Business Valuation Conference, December 2–4, 2007, Discounts for Lack of Marketability Panel—Who’s on First, What’s on Second, I Don’t Know’s on Third, Linda Trugman, Moderator, Mel H. Abraham, Z. Christopher Mercer, and Ronald L. Seigneur, Session No. 10.
78. Estate of Gimbel v. Comm’r, 2006 Tax Ct. Memo. LEXIS 274 (2006).
79. Litman v. United States, 78 Fed. Cl. 90 (Claims Ct. 2007).
80. Estate of Gimbel v. Comm’r, 2006 Tax Ct. Memo. LEXIS 274 (2006).
81. See Ashok Abbott, “Calculating the Cost of Liquidity in Current Markets,” Business Valuation Update, vol. 14, no. 5, May 2008; and Ashok Abbott, “New Abbott Analysis Aids Valuators in Assessing Liquidity Discounts,” Business Valuation Update, vol. 13, no. 11, November 2007.
82. Estate of Andrews v. Comm’r, 79 T.C. 938 (1982).
83. Estate of Furman v. Comm’r, T.C. Memo. 1998-157 (1998); Estate of Magnin v. Comm’r, T.C. Memo. 2001-31 (2001); Estate of Mitchell v. Comm’r, 250 F.3d 696 (9th Cir. 2001); Estate of Janda v. Comm’r, T.C. Memo. 2001-24 (2001); Estate of Deputy v. Comm’r, T.C. Memo. 2003-176 (2003); and Temple v. United States, 2006 U.S. Dist. LEXIS 16171 (E.D. Tex. 2006).
84. Estate of Fleming v. Comm’r, T.C. Memo. 1997-484 (1997).
85. Estate of Andrews v. Comm’r, 79 T.C. 938 (1982).
86. Estate of Hendrickson v. Comm’r, T.C. Memo. 1999-278,1999 Tax Ct. Memo. LEXIS 318 (1999).
87. Estate of Cloutier v. Comm’r, T.C. Memo. 1996-049 (1996).
88. Estate of Dougherty v. Comm’r, 59 T.C. 772 (1990).
89. Estate of Maggos v. Comm’r, T.C. Memo. 2000-129 (2000).
90. Estate of Desmond v. Comm’r, T.C. Memo. 1999-76 (1999).
91. See, e.g., Estate of Dunn v. Comm’r, T.C. Memo. 2000-12 (2000) rev’d on other grounds, 201 F.3d 339 (5th Cir. 2002)(15 percent); and Temple v. United States, 2006 U.S. Dist. LEXIS 16171 (E.D. Tex. 2006)(12.5 percent).
92. Estate of Bennett v. Comm’r, T.C. Memo. 1993-34 (1993).
93. Estate of Jelke v. Comm’r, T.C. Memo. 2005-131 (2005), rev’d 503 F.3d 1317 (11th Cir. 2007).
94. Estate of Green v. Comm’r, T.C. Memo. 2003-384 (2003).
95. Estate of Thompson v. Comm’r, T.C. Memo. 2004-174 (2004).
96. Adams v. United States, 2001 U.S. Dist. LEXIS 13092 (N.D. Tex. 2001).
97. Robertson v. United States, 2006 U.S. Dist. LEXIS 1167 (N.D. Tex. 2006).
98. Hess v. Comm’r, T.C. Memo. 2003-251 (2003).
99. Temple v. United States, 2006 U.S. Dist. LEXIS 16171 (E.D. Tex. 2006).
100. See, e.g., Estate of Davis v. Comm’r, 110 T.C. 530 (1998), where the court recognized in its decision that it probably would have taken five to six months to sell the stock without depressing the price, yet concluded that petitioner failed to satisfy the burden of proof that a blockage discount should be applied.
101. Estate of Mellinger v. Comm’r, 112 T.C. 26 (1999).
102. Estate of Foote v. Comm’r, T.C. Memo. 1999-37 (1999).
103. See, e.g., Estate of Gimbel v. Comm’r, 2006 Tax Ct. Memo LEXIS 274 (2006) (14.2 percent net discount rate for restricted and nonrestricted stock).
104. Estate of Adams v. Comm’r, T.C. Memo. 2002-80 (2002).
105. Estate of Furman v. Comm’r, T.C. Memo. 1998-157 (1998).
106. Estate of Mitchell v. Comm’r, T.C. Memo. 1997-461 (1997), vacated, 250 F.3d 696 (9th Cir. 2001).
107. Estate of Renier v. Comm’r, T.C. Memo. 2000-298 (2000).
108. Estate of Simplot v. Comm’r, 112 T.C. 130 (1999).
109. Estate of Simplot v. Comm’r, 249 F.3d 1191 (9th Cir. 2001).
110. Estate of Simplot v. Comm’r, 112 T.C. 13 (1999), rev’d, 249 F.3d 1191 (9th Cir. 2001).
111. Estate of Maggos v. Comm’r, T.C. Memo. 2000-129 (2000).
112. Estate of Wright v. Comm’r, T.C. Memo. 1997-53 (1997).
113. Eisenberg v. Comm’r, T.C. Memo. 1997-483 (1997).
114. Estate of Davis v. Comm’r, 110 T.C. 530 (1998).
115. Eisenberg v. Comm’r, 155 F.3d 50 (2d Cir. 1998).
116. Estate of Simplot v. Comm’r, 112 T.C. 130 (1999).
117. Estate of Jameson v. Comm’r, T.C. Memo. 1999-43 (1999).
118. Estate of Welch v. Comm’r, T.C. Memo. 1998-167 (1998) rev’d 208 F.3d 213 (6th Cir. 2000).
119. Estate of Borgatello v. Comm’r, T.C. Memo. 2000-264 (2000).
120. Estate of Dunn v. Comm’r, T.C. Memo. 2000-12 (2000), rev’d and remanded, 301 F.3d 339 (5th Cir. 2002).
121. Estate of Jelke v. Comm’r, T.C. Memo. 2005-131 (2005), rev’d 503 F.3d 1317 (11th Cir. 2007).
122. Estate of Jones v. Comm’r, 116 T.C. 121 (2001); and Temple v. United States, 2006 U.S. Dist. LEXIS 16171 (E.D. Tex. 2006).
123. Hewitt v. Comm’r, 166 F.3d 332 (4th Cir. 1998).
124. Koblick v. Comm’r, 2006 Tax Ct. Memo. LEXIS 63 (2006).
125. Todd v. Comm’r, 118 T.C. 354 (2002).
126. Estate of Desmond v. Comm’r, T.C. Memo. 1999-76 (1999).
127. Estate of Mitchell v. Comm’r, T.C. Memo. 1997-461 (1997), vacated, 250 F.3d 696 (9th Cir. 2001).
128. Estate of Klauss v. Comm’r, T.C. Memo. 2000-191 (2000).
129. Rabenhorst v. Comm’r, T.C. Memo. 1996-92 (1996).
130. Central Trust v. United States, 305 F.2d 393 (Ct. Cl. 1962).
131. Polack v. Comm’r, T.C. Memo. 2002-145 (2002), aff’d, 366 F.3d 608 (8th Cir. 2004).
132. Okerlund v. United States, 365 F.3d 1044 (Fed. Cir. 2004).
133. Estate of Noble v. Comm’r, T.C. Memo. 2005-2 (2005).
134. For an extensive list of notable subsequent events court cases, see Shannon P. Pratt with Alina Niculita, Valuing a Business: The Analysis and Appraisal of Closely Held Companies, 5th ed., McGraw-Hill, New York, 2008, ex. 28-1, p. 672.
135. Estate of Jung v. Comm’r, 101 T.C. 412 (1993).
136. Saltzman v. Comm’r, T.C. Memo. 1994-641, 68 T.C. Memo. (CCH) 1544 (1994).
137. Id.
138. Estate of Cidulka v. Comm’r, T.C. Memo. 1996-149, 71 T.C. Memo. (CCH) 2555 (1996).
139. Estate of Scanlan v. Comm’r, T.C. Memo. 1996-331 (1996).
140. Estate of Trompeter v. Comm’r, T.C. Memo. 1998-35 (1998).
141. IRC Section 2703.
142. Estate of Lauder v. Comm’r (Lauder II), T.C. Memo. 1992-736 (1992).
143. Estate of Blount v. Comm’r, T.C. Memo. 2004-116 (2004), aff’d 428 F.3d 1338 (11th Cir. 2005).
144. Estate of True v. Comm’r, T.C. Memo. 2001 167 (2001), aff’d 390 F.3d 1210 (10th Cir. 2004).
145. Hutchens Non-Marital Trust v. Comm’r, T.C. Memo. 1993-600 (1993).
146. Laro and Pratt, Business Valuation and Federal Taxes: Procedure, Law, and Perspective.
147. Central Trust v. United States, 305 F.2d 393 (Ct. Cl. 1962).
148. Hess v. Comm’r, T.C. Memo. 2003-251 (2003).
149. Estate of Dunn v. Comm’r, T.C. Memo. 2000-12 (2000) rev’d on other grounds, 201 F.3d 339 (5th Cir. 2002).
150. Other examples of express weighting are Estate of Freeman v. Comm’r, T.C. Memo. 1996-372 (1996) (court accepts IRS’s 70 percent weighting of market approach and 30 percent of income approach, but the court accords no weight to taxpayer’s value); and Estate of Smith v. Comm’r, T.C. Memo. 1999-368 (1999) (court accepts a 70/30 percent weighting to asset/income approaches, respectively).
151. Shannon Pratt et al., Valuing a Business, 3rd ed., Update to 5th Edition, 1996, p. 374.
152. For further discussion of this issue, see ch. “Weighting of Approaches,” in David Laro and Shannon P. Pratt, Business Valuation and Taxes: Procedure, Law, and Perspective, Wiley, New York, 2005.
153. Estate of Bruce v. Comm’r, T.C. Memo. 1993-244 (1993).
154. Estate of Furman v. Comm’r, T.C. Memo. 1998-157 (1998). See also Estate of Fleming v. Comm’r, T.C. Memo. 1997-484 (1997); and Buffalo Tool & Die Manufacturing Co. v. Comm’r, 74 T.C. 441, 1980 WL 4569 (1980).
Chapter 20
1. See Model Bus. Corp. Act §14.30(2)(ii) (2002), available at http://www.abanet.org/buslaw/library/onlinepublications/mbca2002.pdf (providing that a shareholder may petition for dissolution when “the directors or those in control of the corporation have acted, are acting, or will act in a manner that is illegal, oppressive, or fraudulent”).
2. Nixon v. Blackwell, 626 A.2d 1366, 1377 (Del. 1993).
3. See John H. Matheson and R. Kevin Maler, “A Simple Statutory Solution to Minority Oppression in the Closely Held Business,” 91 Minn. L. Rev. 657, February 2007. (Based on its survey of the law in all 50 states, the article indicates that 20 states apply the reasonable expectations standard, 1 state uses reasonable expectations as a factor, and 12 states have adopted a fiduciary duty approach that, for the most part, is expansive and could be employed to reach the same result as the reasonable expectations standard.)
4. Id. at fn. 32 (indicating that about 40 states provide this remedy by statute or through case law).
5. See, for example, Baker v. Commercial Body Builders, 264 Ore. 614, 507 P.2d 387 (1973); and Alaska Plastics, Inc. v. Coppock, 621 P.2d 270 (Alas. 1980).
6. See, for example, Landstrom v. Shaver, 561 N.W.2d 1 (S.D. 1997); Meiselman v. Meiselman, 307 S.E.2d 551 (N.C. 1983); Fox v. 7-L Bar Ranch Co., 645 P.2d 929 (Mont. 1982); Mulenberg v. Bicon Corp., 669 A.2d 1382 (N.J. 1996); and In re Kemp & Beatley, Inc., 473 N.E.2d 1173 (N.Y. 1984).
7. Compton v. Paul K. Harding Realty Co., 285 N.E.2d 574 (Ill. Ct. App. 1972).
8. Donahue v. Rodd Electrotype Co., 328 N.E.2d 505, 515 (Mass. 1975).
9. See, e.g., Guy v. Duff & Phelps, Inc., 672 F. Supp. 1086, 1090 (N.D. Ill. 1987); Orchard v. Covelli, 590 F. Supp. 1548, 1556–59 (W.D. Pa. 1984); W & W Equip. Co. v. Mink, 568 N.E.2d 564, 570–571 (Ind. Ct. App. 1991); Evans v. Blesi, 345 N.W.2d 775, 779 (Minn. Ct. App. 1984); Fought v. Morris, 543 So. 2d 167, 170–171 (Miss. 1989); Crosby v. Beam, 548 N.E.2d 217, 220–221 (Ohio 1989); and Estate of Schroer v. Stamco Supply, Inc., 482 N.E.2d 975, 981 (Ohio Ct. App. 1984).
10. See Douglas K. Moll, “Minority Oppression & The Limited Liability Company: Learning (or Not) from Close Corporation History,” 40 Wake Forest L Rev 883, 925–940 (2005), which shows that the limitations imposed on limited liability companies by the new default withdrawal and dissolution provisions enacted after promulgation in late 1996 of the IRS “check the box” regulations (Treas Reg [26 CFR] §§ 301.7701-1 to 301.7701-3), were intentional and designed for estate and gift tax purposes “to minimize the tax value of an ownership interest” in an LLC “to reflect (1) that the interest is difficult to liquidate, and (2) that purchasers will generally pay less for illiquid positions.” (40 Wake Forest L Rev at 936 [collecting authorities at 937–939].) “While perhaps accomplishing an estate tax goal, the elimination of default withdrawal and dissolution rights leaves minority members vulnerable to oppressive majority actions since the minority can no longer easily exit the venture with the value of its investment.”
11. Model Business Corporation Act, § 13.01(4) (2002 ed.).
12. For a review of the standard of value for dissenters’ rights and oppression actions in the 50 states, see Jay E. Fishman, Shannon P. Pratt, and William J. Morrison, Standards of Value: Theory and Applications, Wiley, New York, 2007, pp. 115–119. Please update this, Shannon says newer version out.
13. For a listing of states that have adopted some version of the RMBCA definition of fair value, see Jay E. Fishman, Shannon P. Pratt, et al., PPC’s Guide to Business Valuations, 18th ed., Thomson Tax & Accounting, Houston, 2008, Ex. 15-1, “States That Have Adopted the RMBCA Definition of Fair Value,” p. 15-5.
14. In Matter of Shell Oil Co., 607 A.2d 1213 (Del. Sup. Ct. 1992).
15. Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983).
16. Grimes v. Vitalink Communications Corp., 1997 Del. Ch. LEXIS 124, 1997 WL 538676 (Del. Ch. 1997). See also Gholl v. eMachines, Inc., 2004 Del. Ch. LEXIS 171 (Del. Ch. 2004) (“This method is widely accepted in the financial community and has frequently been relied upon by this Court in appraisal actions”; Andaloro v. PFPC Worldwide, Inc., 2005 Del. Ch. LEXIS 125 (Del. Ch. 2005) (“The DCF model of valuation is a standard one that gives life to the finance principle that firms should be valued based on the expected value of their future cash flows, discounted to present value in a manner that accounts for risk. The DCF method is frequently used in this court and, I, like many others, prefer to give it great, and sometimes even exclusive, weight when it may be used responsibly”; In re United States Cellular Operating Co., 2005 Del. Ch. LEXIS 1 (Del. Ch. 2005) (“While DCF analyses have become the dominant approach in appraisal proceedings … the ultimate selection of a valuation framework remains within the court’s discretion.”); and In re PNB Holding Co., 2006 Del. Ch. LEXIS 158 (Del. Ch. 2006) (the court focused exclusively on the experts’ DCF analyses); Crescent/Mach I Partnership, L.P. v. Turner, 2007 Del. Ch. LEXIS 63 (Del. Ch. 2007) (citing prior Delaware decisions, the court reiterated its preference for the DCF method and its general opinion that “other methodologies—all based on comparables of one form or another—are of limited value.”)
17. Weinberger v. UOP, Inc., 457 A.2d 701, 710 (Del. 1983).
18. See, e.g., The Union Illinois 1995 Investment Limited Partnership v. Union Financial Group, Ltd., 847 A.2d 340 (Del. Ch. Dec. 19, 2003); Doft & Co. v. Travelocity.com Inc., 2004 Del. Ch. LEXIS 75 (Del. Ch. 2004); Finkelstein v. Liberty Digital, Inc., 2005 Del Ch. LEXIS 53 (Del. Ch. 2005); and Highfields Capital, Ltd. v. AXA Financial, Inc., 2007 Del. Ch. LEXIS 126 (Del. Ch. 2007).
19. See Bair v. Purcell, 2008 U.S. Dist. LEXIS 6518 (M.D. Pa. 2008).
20. See, e.g., Bell v. Kirby Lumber Corp., 413 A.2d 137 (Del. 1980); and The Union Illinois 1995 Investment Limited Partnership v. Union Financial Group, Ltd., 847 A.2d 340 (Del. Ch. Dec. 19, 2003) (the fair value of the company’s shares as of the merger date was the merger price minus any synergies).
21. See, e.g., In re Valuation of Common Stock of McLoon Oil Co., 565 A.2d 997 (Me. 1989) (“Especially in fixing the appraisal remedy in a close corporation, the relevant inquiry is what is the highest price a single buyer would reasonably pay for the whole enterprise”); and BNE Mass. Corp. v. Simms, 588 N.E.2d 14 (Mass. App. Ct. 1992). The task assigned in BNE Mass. Corp. v. Simms under the appraisal statute was “not to reconstruct an ‘intrinsic value’ of each share of the enterprise but, rather, to determine what a willing buyer realistically would pay for the enterprise as a whole on the statutory valuation date. … Only in this fashion can minority stockholders be assured that insiders in control of a company, burdened by conflicting interests, may not purchase the enterprise at a price less than that obtainable in the marketplace of qualified buyers and avoid paying a full and fair price to the minority.”
22. Jay E. Fishman, Shannon P. Pratt, and William J. Morrison, Standards of Value: Theory and Applications, 2nd ed., Wiley, New York, 2013, p. 122.
23. These states include Alabama—Ex parte Baron Service, Inc., 874 So.2d 545 (Ala. 2003); California—Thompson v. Miller, 2003 Cal. App. LEXIS 1489 (Cal. Ct. App. 2003); Illinois—Jahn v. Kinderman, 814 N.E.2d 116 (Ill. Ct. App. 2004); Missouri—King v. F.T.J., Inc., 765 S.W.2d 301 (Mo. Ct. App. 1988); Nevada—Steiner v. Benninghoff, 5 F. Supp. 2d 1117 (1998); New Mexico—McCauley v. Tom McCauley & Son, Inc., 724 P.2d 232 (N.M. Ct. App. 1986); and North Carolina—Garlock v. Souteastern Gas & Power, 2001 NCBC 10, 2001 NCBC LEXIS 9 (N.C. Super. 2001).
24. Jahn v. Kinderman, 814 N.E.2d 116 (Ill. Ct. App. 2004).
25. 615 N.W.2d 285, 292 (Minn. 2000)
26. American Law Institute, Principles of Corporate Governance: Analysis and Recommendations, American Law Institute, Philadelphia, 1992.
27. Arizona—Pro Finish USA, Ltd. v. Johnson, 63 P.3d 288 (Ariz. Ct. App. 2003); Minnesota—Rain Forest Café, Inc. v. State of Wisconsin Inv. Bd., 677 N.W.2d 443 (Minn. Ct. App. 2004); Advanced Communication Design, Inc. v. Follett, 615 N.W.2d 285 (Minn. 2000); New Jersey—Balsamides v. Protameen Chemicals, Inc., 734 A.2d 721 (N.J. 1999); Lawson Mardon Wheaton, Inc. v. Smith, 734 A.2d 738 (N.J. 1999); and Utah—Hogle v. Zinetics Medical, Inc., 63 P.3d 80 (Utah 2002).
28. Lawson Mardon Wheaton, Inc. v. Smith, 734 A.2d 738 (N.J. 1999); and Balsamides v. Protameen Chemicals Inc., 734 A.2d 721 (N.J., 1999).
29. Cavalier Oil v. Harnett, 564 A.2d 1137; 1989 Del. LEXIS 325 (Del. 1989).
30. Connecticut—Conn. Gen. Stat. § 33-855(4) (enacted 2002); Florida—Fla. Stat. §607.1301(4)(enacted 2006) (applies to corporations with 10 or fewer shareholders); Idaho—Idaho Code §30-1-1301 (enacted 2004); Iowa—Iowa Code § 490.1301(4) (enacted 2002); Maine—13-C Maine Rev. Stat. § 1301(4) (enacted 2003); Mississippi—Miss. Code Ann. § 79-4-13.01(4) (enacted 2007); South Dakota—S.D. Codified Laws § 47-1A-1301 (enacted 2005); Virginia—Va. Code Ann. § 13.1-729 (enacted 2005); and West Virginia—W. Va. Code § 31D-13-1301(4) (enacted 2002).
31. For a list of states and cases that reject discounts, see Jay E. Fishman, Shannon P. Pratt, and William J. Morrison, Standards of Value: Theory and Applications, Wiley, New York, 2007, ex. 3.7, “Cases Rejecting Discounts”, pp. 139–142.
32. Sieg Co. v. Kelly, 568 N.W.2d 794 (Iowa 1997).
33. Pueblo Bancorporation v. Lindoe, Inc., 37 P.3d 492 (Colo. 2003).
34. Brown v. Arp and Hammond Hardware Co., 141 P.3d 673 (Wyo. 2006).
35. 630 P.2d 167 (Kan. 1981).
36. Arnaud v. Stockgrowers State Bank of Ashland, 992 P.2d 216, 1999 Kan. LEXIS 645 (1999).
37. Hansen v. 75 Ranch Co., 957 P.2d 32 (Mont. 1998).
38. McCann Ranch, Inc. v. Quigley-McCann, 915 P.2d 239 (Mont. 1996).
39. See, e.g., Ford v. Courier-Journal Job Printing Co., 639 S.W.2d 553, (Ky. Ct. App. 1982); and In re Brooklyn Home Dialysis Training Center, Inc., 741 N.Y.S.2d 280 (N.Y. App. Div. 2002).
40. See, e.g., Shopf v. Marina Del Ray Partnership, 549 So. 2d 833 (La. 1989) (in determining “fair cash value,” the “fair value” equivalent in Louisiana, the court permitted the application of a discount for lack of control to a 12 percent minority interest).
41. See, e.g., English v. Atromick Int’l Inc., 2000 Ohio App. LEXIS 3580 (Ohio Ct. App. 2000). In determining “fair cash value,” the “fair value” equivalent in Ohio, the court applied the willing buyer/willing seller approach and determined that both marketability and minority discounts were appropriate.
42. Rapid-Americn Corp. v. Harris, 603 A.2d 796 (Del. 1992).
43. Hintmann v. Fred Weber, Inc., 1998 Del. Ch. LEXIS 26 1998 WL 853052 (Del. Ch. 1998).
44. Gilbert E. Matthews, “Delaware Court Adds Control Premium to Subsidiary Value,” Shannon Pratt’s Business Valuation Update, May 1998, at 9–10; and “A Review of Valuations in Delaware Appraisal Cases, 2004–2005,” Business Valuation Review, vol. 25, no. 2 (Summer 2006).
45. Borruso v. Communications Telesystems International, 1999 Del. Ch. LEXIS 197 (1999).
46. Doft & Co. v. Travelocity.com, Inc., 2004 Del. Ch. LEXIS 75 (Del. Ch. 2004).
47. In re Valuation of Common Stock of Penobscot Shoe Company, 2003 Me. Super. LEXIS 140 (Me. Super. 2003).
48. Northwest Investment Corp. v. Wallace, 2007 Iowa Sup. LEXIS 87 (Iowa 2007).
49. See Estate of Davis v. Commissioner, 110 TC 530 (T.C. 1998); Estate of Jameson v. Commissioner, T.C. Memo. 1999-43, 77 T.C.M. (CCH) 1383 (T.C. 1999); and Estate of Eisenberg v. Commissioner, T.C. Memo. 1997-483, 74 T.C.M. (CCH) 1046 (T.C. 1997).
50. Matthew G. Norton Co. v. Smyth, 112 Wn. App. 865, 51 P.3d 159 (Wash. Ct. App. 2002).
51. Brown v. Arp and Hammond Hardware Co., 141 P.3d 673 (Wyo. 2006).
52. Seagraves v. Urstadt Property Co., 1996 Del. Ch. LEXIS 36, 1996 WL 159626 (Del. Ch. 1996).
53. Kahn v. Tremont Corp., 694 A.2d 422, 429 (Del. 1997).
54. Ryan v. Tad’s Enterprises, 709 A.2d 682 (Del. Ch. 1996).
55. M.G. Bancorporation v. Le Beau, 737 A.2d 513 (Del. 1999).
56. Weinberger v. UOP, Inc., 457 A.2d 701 (Del. 1983).
57. Gesoff v. IIC Industries, Inc., 902 A.2d 1130 (Del. Ch. 2006).
58. In re Slant/Fin Corp., 236 A.D.2d 547, 654 N.Y.S.2d 627 (N.Y. App. Div. 1997).
59. Pueblo Bancorporation v. Lindoe, Inc., 63 P.3d 353 (Colo. 2003).
60. See Lawson Mardon Wheaton, Inc., v. Smith, 716 A.2d 550, 558 (N.J. Super. App. Div. 1998), aff’d, 734 A.2d 738 (N.J. 1999). “Fair Value carries with it the statutory purposes that shareholders be fairly compensated, which may or may not equate with the market’s judgment about the stock’s value. This is particularly appropriate in the close corporation setting where there is no ready market for the shares and consequently no Fair Market Value.”
61. See, e.g., Swope v. Seigel-Robert, Inc., 243 F.3d 486, 2001 U.S. App. LEXIS 2760 (8th Cir. 2001); Wenzel v. Hopper & Galliher, P.C., 779 N.E.2d 30, (Ind. Ct. App. 2002); First W. Bank Wall v. Olsen, 2001 SD 16, 621 N.W.2d 611, (S.D. 2001); Matthew G. Norton Co. v. Smyth, 112 Wn. App. 865, 51 P.3d 159 (Wash. Ct. App. 2002); and HMO-W, Inc. v. SSM Health Care Sys., 2000 WI 46, 234 Wis. 2d 707, 611 N.W.2d 250 (Wis. 2000).
62. Bair v. Purcell, 2008 U.S. Dist. LEXIS 6518 (M.D. Pa. 2008).
63. Cox Enterprises, Inc. v. News-Journal Corp., 2007 U.S. App. LEXIS 29533 (11th Cir. 2007).
64. Oakridge Energy Inc. v. Clifton, 937 P.2d 130 (Utah 1997).
65. Pueblo Bancorporation v. Lindoe, Inc., 63 P.3d 353 (Colo. 2003).
66. Berens v. Ludwig, 160 F.3d 1144 (7th Cir. 1998).
67. Riddle-Bradley, Inc. v. Riddle, 459 S.E.2d 576 (Ga. Ct. App. 1995).
Chapter 21
1. See, e.g., Bobrow v. Bobrow, State of Indiana, Hamilton Superior Court Case No. 29D01-0003-DR-166; Howell v. Howell, 1998 WL 972312 (Va. Cir. Ct. Sept. 4, 1998), aff’d 523 S.E.2d 514 (Va. Ct. App. 2000).
2. A.C.A. Section 9-12-315(4) (2008).
3. La. R.S. Section 9:2801-(1)(a) (2008).
4. See, e.g., Golden v. Golden, 270 Cal. App. 2d 401, 1969 Cal. App. LEXIS 1538 (Cal. Ct. App. 1969). In a community property state, the spouse’s contribution to the intangible value of the other spouse’s business is treated as an investment in stock.
5. For definitions and discussion of various standards of value, see Shannon Pratt and Alina V. Niculita, Valuing a Business, 5th ed., McGraw-Hill, New York, 2008, pp. 29–54, and Jay Fishman et al., Standards of Valuation: Theory and Applications, 2nd ed., John Wiley, New York, 2013, 2007.
6. Alan S. Zipp, “Business Valuation Standard for Divorce Is Different from Fair Market Value,” American Journal of Family Law, Fall 1997, pp. 167–172; Alan S. Zipp, “Fair Value as a Basis for Business Valuation in Divorce,” in ch. 5, “Fair Value in Marital Dissolution,” BVR’s Guide to Fair Value in Shareholder Dissent, Oppression, and Marital Dissolution, Business Valuation Resources, Portland, OR, 2007.
7. David M. Bishop and Steven F. Schroeder, “Business Valuation Standard of Value for Divorce Should Be Fair Market Value,” American Journal of Family Law, Spring 1999, pp. 48–52.
8. See, e.g., Robert Kleeman, Jr., “Fair Value Versus Fair Market Value: Is There a Place for Fair Value in Marital Dissolution?” in ch. 5, “Fair Value in Marital Dissolution,” BVR’s Guide to Fair Value in Shareholder Dissent, Oppression, and Marital Dissolution, Business Valuation Resources, Portland, OR, 2007.
9. Antolik v. Harvey, 761 P.2d 305 (Haw. Ct. App. 1988).
10. Liddle v. Liddle, 410 N.W.2d 196, 199 (Wis. Ct. App. 1987), cited in Sommerfield v. Sommerfield, 454 N.W.2d 55 (Wis. Ct. App. 1990).
11. Liddle v. Liddle.
12. Sommers v. Sommers, 660 N.W.2d 586, 2003 ND 77 (N.D. 2003).
13. Bausano v. Bausano, 632 N.W.2d 123, 246 Wis.2d 987 (Wis. Ct. App. 2001).
14. Hoverson v. Hoverson, 629 N.W.2d 573, 2001 N.D. 124 (N.D. 2001).
15. See, e.g., Baum v. Baum, 584 P.2d 604 (Ariz. Ct. App. 1978).
16. See, e.g., Brown v. Brown, 913 S.W.2d 163 (Tenn. Ct. App. 1994).
17. See, e.g., Scottson v. Scottson, 1995 WL 550925 (Minn. Ct. App. 1995).
18. In Conway v. Conway, 1998 WL 865157 (N.C. Ct. App. 1998), the court ruled that to demonstrate active appreciation of separate property, there must be a showing of the value of the asset at the time of the acquisition; the value of the asset at the time of separation; and the difference between the two values. Applying these criteria, the court determined that whereas marital efforts had led to the acquisition of a medical license, it did not result in the appreciation of the license’s value. In Deffenbaugh v. Deffenbaugh, 877 S.W.2d 186 (Mo. Ct. App. 1994), the Missouri court held that where the husband failed to prove that his acumen and effort contributed to the appreciation in the wife’s separate mutual fund shares, the appreciation was nonmarital property.
19. See, e.g., Hargrave v. Hargrave, 209 Cal. Rptr. 764, 769 (Cal. Ct. App. 1985); Aufmuth v. Aufmuth, 152 Cal. Rptr. 668, 670 (Cal. Ct. App. 1979); Moffitt v. Moffitt, 813 P.2d 674, 678 (Alaska 1991); Ogard v. Ogard, 808 P.2d 815, 818–819 (Alaska 1991); Taylor v. Taylor, 736 S.W.2d 388, 391 (Mo. 1987); and Butler v. Butler, No. 82077, 1998 WL 933354, at *2 (N.Y. App. Div. Dec. 30, 1998).
20. For example, In re Marriage of Olinger, 707 P.2d 64, 68 (Or. Ct. App. 1985); Koch v. Koch, 874 S.W.2d 571, 576 (Tenn. Ct. App. 1993); Wilson v. Wilson, 741 S.W.2d 640, 643 (Ark. 1987); In re Marriage of Talty, 623 N.E.2d 1041, 1046 (Ill. App. Ct. 1993); In re Marriage of Thomas, 608 N.E.2d 585, 587 (Ill. App. Ct. 1993); In re Marriage of Lopez, 841 P.2d 1122, 1125 (Mont. 1992); In re Marriage of Swanson, 716 P.2d 219, 222 (Mont. 1986); Vivian v. Vivian, 583 P.2d 1072, 1074 (Mont. 1978); In re Marriage of Wagner, 679 P.2d 753, 758 (Mont. 1984); Dunn v. Dunn, 802 P.2d 1314, 1320 (Utah Ct. App. 1990); Sommerfield 454 N.W.2d at 60; and Skokos v. Skokos, 40 S.W.3rd 768 (Ark. 2001).
21. Mallett v. Mallett, 473 S.E.2d 804, 810 (S.C. Ct. App. 1996); Hickum v. Hickum, 463 S.E.2d 321, 323 (S.C. Ct. App. 1995); Hillebrand v. Hillebrand, 546 A.2d 1047, 1049 (N.H. 1988); Rosenberg v. Rosenberg, 510 N.Y.S.2d 659, 662 (App. Div. 1987); Muller v. Muller, 456 N.Y.S.2d 918, 922 (Sup. Ct. 1982); and Siegel v. Siegel, 523 N.Y.S.2d 517, 520 (App. Div. 1987) (because possibility of dissipation of corporate assets existed). But see Scharfman v. Scharfman, 2005 N.Y. App. Div. LEXIS 6584 (N.Y. App. Div. 2005). The appellate court rejected the trial court’s acceptance of the date of filing as the valuation date over the trial date where there was no evidence that the husband’s efforts caused the appreciation in value of the marital property.
22. Kilbourne v. Kilbourne, 284 Cal. Rptr. 201, 204 (Cal. Ct. App. 1991); Moffitt, 813 P.2d at 678; Ogard, 808 P.2d at 818–819; Richmond v. Richmond, 779 P.2d 1211, 1214 (Alaska 1989); Carlson v. Carlson, 487 S.E.2d 784, 786 (N.C. Ct. App. 1997); Bergeland v. Bergeland, 2000 Minn. App. LEXIS 952, 2000 WL 1239754 (Minn. Ct. App. 2000); In re Marriage of Rubens, 2003 Wash. App. LEXIS 1544 (Wash. Ct. App. 2003); and Morton v. Morton, 2005 M. Ch. App. LEXIS 1406 (Mich. Ct. App. 2005). But see, e.g., Washington v. Washington, 2005 Va. App. LEXIS 177 (Va. App. 2005) in which the court rejected the date of separation, instead of the date of evidentiary hearing, which occurred two years after the separation, where the husband’s business increased in value over the two years but the husband did not present evidence that this increase was the result of his extraordinary efforts.
23. Scalero v. Scalero, 1998 WL 23845, at *3 (Ohio Ct. App. 1998); Wallace v. Wallace, 733 S.W.2d 102, 106 (Tenn. Ct. App. 1987); Reese v. Reese, 671 N.E.2d 187, 191 (Ind. Ct. App. 1996); and Favell v. Favell, 957 P.2d 556, 462 (Okla. Ct. App. 1997).
24. Green v. Green, 1998 WL 363840, at *3 (Ohio Ct. App. 1998); and Quillen v. Quillen, 671 N.E.2d 98 (Ind. 1996).
25. For an extensive discussion of goodwill valuation issues, see Noah J. Gordon, “Goodwill Valuation in the Courts,” ch. 2, BVR’s Guide to Personal v. Enterprise Goodwill, Business Valuation Resources, Portland, OR, 2008.
26. Available from Business Valuation Resources at www.bvlibrary.com.
27. Lopez v. Lopez, 38 Cal. App.3d 93, 113 Cal. Rptr. 58 (Cal. Ct. App. 1974).
28. For cases using similar factors, see, e.g., In re Marriage of Fleege, 91 Wash. 2d 324, 588 P.2d 1136 (Wash. 1979); and Crosetto v. Crosetto, 1996 WL 389337 (Wash. App. 1996).
29. Hanson v. Hanson, 738 S.W.2d 429 (Mo. 1987).
30. May v. May, 2003 W. Va. LEXIS 118 (W. Va. 2003). See also Nowzaradan v. Nowzaradan, 2007 Tex. App. LEXIS 1021 (Tex. App. 2007); Thompson v. Thompson, 576 So. 2d 267 (Fla. 1991).
31. Stewart v. Stewart, 2007 Ida. LEXIS 17 (Idaho 2007).
32. See also Gaskill v. Robbins, 2006 Ky. App. LEXIS 364 (Ky. Ct. App. 2006), in which the court ruled that it would be inequitable to hold that the form of the business enterprise can defeat the community’s interest in professional goodwill since such a result ignores the contribution made by the nonprofessional spouse to the success of the professional; Bunkers v. Bunkers, 2007 Ohio App. LEXIS 523 (Ohio Ct. App. 2007), in which the court ruled that all goodwill of a solo practitioner is subject to equitable division in divorce.
33. Yoon v. Yoon, 711 N.E.2d 1265 (Ind. 1999).
34. State of Indiana, Hamilton Superior Court Cause No. 29D01-0003-DR-166.
35. In re Marriage of Alexander, 2006 Ill. App. LEXIS 836 (Ill. Ct. App. 2006); and Neary v. Neary, Case No. 06-DR-3254 (18th Cir., Seminole, Fla.).
36. See, e.g., May v. May, 2003 W. Va. LEXIS 118 (W. Va. 2003).
37. See, e.g., In re Marriage of Ackerman, 2006 Cal. App. LEXIS 2056 (Cal. Ct. App. 2006).
38. Gaydos v. Gaydos, 693 A.2d 1368 (Pa. Super. Ct. 1997).
39. See Holbrook v. Holbrook, 103 Wis. 2d 327, 309 N.W.2d 343, 1981 Wis. App. LEXIS 3322 (Wis. Ct. App. 1981): “The concept of professional goodwill evanesces when one attempts to distinguish it from future earning capacity”; Donahue v. Donahue, 299 S.C. 353, 384 S.E.2d 741 (S.C. 1989); and Hickum v. Hickum, 463 S.E.2d 321 (S.C. Ct. App. 1995).
40. Peerenboom v. Peerenboom, 433 N.W.2d 282 (Wis. Ct. App. 1988).
41. See, e.g., In re Bookout, 833 P.2d 800 (Colo. Ct. App. 1991), cert. denied, 846 P.2d 189 (Colo. 1993); and In re Hall, 103 Wn.2d 236, 692 P.2d 175 (Wash. 1984).
42. Golub v. Golub, 139 Misc. 2d 440, 527 N.Y.S.2d 946 (N.Y. Sup. Ct. 1988); and Elkus v. Elkus, 169 A.D.2d 134, 572 N.Y.S.2d 901 (N.Y. App. Div. 1991).
43. Piscopo v. Piscopo, 232 N.J. Super. 559, 557 A.2d 1040 (N.J. Super. Ct. 1989).
44. O’Brien v. O’Brien, 489 N.E.2d 712, 66 N.Y.2d 576, 498 N.Y.S.2d 743 (N.Y. 1985).
45. See, e.g., In re Marriage of Monaghan, 899 P.2d 841 (Wash. Ct. App. 1995), which held that a covenant not to compete is the personal property of the practitioner; Kricsfeld v. Kricsfeld, 588 N.W.2d 210, 8 Neb. App. 1 (Neb. Ct. App 1999), which held that a noncompete agreement is personal to the practitioner and can never be a marital asset; Held v. Held, 2005 Fla. App. LEXIS 14138 (Fla. Ct. App. 2005), which held that for the purpose of distinguishing enterprise goodwill from personal goodwill in the valuation of a business, there is no distinction between a “non-solicitation/non-piracy agreement” and a covenant not to compete, which is attributable to the personal reputation of the seller-spouse and not to the enterprise goodwill of the business; and Sweere v. Gilbert-Sweere, 534 N.W.2d 294, 1995 Minn. App. Lexis 912 (Minn. Ct. App. 1995), which held that to the extent that the purpose of a noncompete agreement is to prevent the spouse from interfering with the transfer of goodwill, the agreement is representative of marital goodwill.
46. In re Marriage of King, 197 Cal. Rptr. 716 (Cal. Ct. App. 1983).
47. Shannon Pratt with Alina Niculita, Valuing a Business: The Analysis and Appraisal of Closely Held Companies, McGraw-Hill, New York, 2008, pp. 971–972.
48. See Shannon Pratt, “Contradictions in Family Law Cases,” Judges & Lawyers Business Valuation Update, December 1999, pp. 1, 4–5. See also, e.g., Poore v. Poore, 75 N.C. App. 414, 331 S.E.2d 266 (N.C. Ct. App. 1985), which lists as acceptable methods the following:
• The price a willing buyer would pay
• Capitalization of excess earnings
• One year’s average gross income
• Evidence of sales of comparable practices
All of these imply continued participation to some degree, or a noncompete agreement.
49. See, e.g., Rosenberg v. Rosenberg, 510 N.Y.S.2d 659, 662 (App. Div. 1987); Hertz v. Hertz, 657 P.2d 1169, 1174–75 (N.M. 1983); and Johnson v. Johnson, 771 P.2d 696, 698 (Utah Ct. App. 1989).
50. In re Marriage of Brooks, 756 P.2d 161 (Wash. Ct. App. 1988). See also In re Matter of Overbey, 2007 Wash. App. LEXIS 1651 (Wash. Ct. App. 2007), which continued this state’s approach and indicated that a buy-sell agreement was not a binding separation contract, and that while the formula contained therein was relevant, it was not determinative of the company’s value.
51. See, e.g., In re Marriage of Herlitzke, 2006 Wis. App. LEXIS 972 (Wis. Ct. App. 2006), which held that the buy-sell agreement may establish the fair market value of a partnership or S corporation, but it does not do so as a matter of law; Herron v. Herron, 2004 Ohio App. LEXIS 5209 (Ohio Ct. App. 2004), in which the court gave weight to the closely held company’s buy-sell agreement because “[a]ny willing buyer would certainly take into account the buy/sell agreement before making any offer on the stock”; R.V.K. v. L.L.K, 2002 WL 31421572 (Tex. Ct. App. 2002); Harmon v. Harmon, 2000 WL 286718 (Tenn. Ct. App. 2000); and Howell v. Howell, 46 Va. Cir. 339; 1998 Va. Cir. LEXIS 256 (Va. Cir. Ct. 1998), aff’d, 31 Va. App. 332, 523 S.E.2d 514 (Va. Ct. App. 2000).
52. In re Marriage of Dieger, 584 N.W.2d 567 (Iowa Ct. App. 1998).
53. Berenberg v. Berenberg, 474 N.W.2d 843 (Minn. Ct. App. 1991).
54. Lyon v. Lyon, 439 N.W.2d 18 (Minn. 1989).
55. Bettinger v. Bettinger, 396 S.E.2d 709 (W. Va. 1990). See also Barton v. Barton, 2007 Ga. LEXIS 21 (Ga. 2007), in which the Georgia Supreme Court joined the clear majority of states on this issue and held that the value of stock set forth in a buy-sell agreement for a closely held corporation is not binding for purposes of property division in divorce proceedings. The court reasoned that “the buy-sell price in a closely held corporation can be manipulated and does not necessarily reflect true market value.”
56. In re Marriage of Gillespie, 948 P.2d 1338 (Wash. Ct. App. 1997).
57. See, e.g., In re Marriage of Monaghan, 899 P.2d 841 (Wash. Ct. App. 1995), which said that the portion of the sale price attributable to covenant is the husband’s separate property); Kricsfeld v. Kricsfeld, 588 N.W.2d 210, 1999 Neb. App. LEXIS 1 (Neb. Ct. App. 1999); Ellerbe v. Ellerbe, 323 S.C. 283, 473 S.E.2d 881 (S.C. Ct. App. 1996); Cutsinger v. Cutsinger, 917 S.W.2d 238 (Tenn. Ct. App. 1995), in which the court excluded monetary amounts for covenant not to compete from the purchase price of the chiropractic practice; Hoeft v. Hoeft, 74 Ohio App. 3d 809, 600 N.E.2d 746 (Ohio Ct. App. 1991), in which the court determined that while proceeds received for the sale of the husband’s dental practice were marital property, monies received from a covenant not to compete were nonmarital; Johnston v. Johnston, 778 S.W.2d 674 (Mo. Ct. App. 1989), in which the covenant not to compete was properly excluded in the valuation of the dental practice; Donahue v. Donahue, 299 S.C. 353, 384 S.E.2d 741 (1989), which said that the goodwill of a professional practice is not subject to equitable distribution; and Lucas v. Lucas, 621 P.2d 500 (N.M. 1980), which said that the right to compete is a personal right and the separate property of its owner.
58. Reese v. Reese, 671 N.E.2d 187 (Ind. Ct. App. 1996); and Sweere v. Gilbert-Sweere, 534 N.W.2d 294, 1995 Minn. App. Lexis 912 (Minn. Ct. App. 1995), which said that to the extent that the purpose of a noncompete agreement is to prevent the spouse from interfering with the transfer of goodwill, the agreement is representative of marital goodwill.
59. Duncan v. Duncan, 90 Cal. App. 4th 617 (Cal. Ct. App. 2001).
60. The database Pratt’s Stats (see ch. 3) shows how much was allocated to a covenant not to compete when one was involved in the sale of a business or practice.
61. Hayes v. Hayes, 756 P.2d 298 (Alaska, 1988).
62. In re Marriage of Harrington, 935 P.2d 1357 (Wash. Ct. App. 1997).
63. See, e.g., Priebe v. Priebe, 556 N.W.2d 78 (S.D. 1996) (40 percent); In re Marriage of DeCosse, 936 P.2d 821, 1997 WL 19374 (Mont. 1997) (20 percent); Arneson v. Arneson, 355 N.W. 2d 16 (Wis. Ct. App. 1984) (25 percent); Rattee v. Rattee, 767 A. 2d 415, 146 N.H. 44 (N.H. 2001); L.R.M. v. R.K.M., 46 S.W.3d 24 (Mo. Ct. App. 2001) (32 percent combined discount); and Anderson v. Anderson, 2006 Tenn. App. LEXIS 592 (Tenn. App. 2006) (38.3 percent).
64. See, e.g., Howell v. Howell, 46 Va. Cir. 339, 1998 Va. Cir. LEXIS 256 (Va. Cir. Ct. 1998), aff’d, 31 Va. App. 332, 523 S.E.2d 514 (Va. Ct. App. 2000); Oatey v. Oatey, No. 67809, 67973 Ohio Ct. App., 1996 WL 200273 at *22 (Apr. 25, 1996); Nardini v. Nardini, 414 N.W. 2d 184, 189 (Minn. 1987); Cross v. Cross, 586 P.2d 547, 549 (Wyo. 1978); Ferraro v. Ferraro, 2000 WL 251678 (Va. Ct. App. 2000); Brown v. Brown, 348 N.J. Super. 466, 792 A.2d 463, 2002 N.J. Super. LEXIS 105 (N.J. Super. 2002), in which discounts were disallowed absent extraordinary circumstances; Baltrusis v. Baltrusis, 113 Wash. App. 1037 (Wash. Ct. App. 2002); and Hanson v. Hanson, 2005 Alas. LEXIS 166 (Alaska 2005), in which there was no discount where the majority spouse acquires the minority spouse’s interest.
65. See, e.g., In re Marriage of Tofte, 895 P.2d 1387, 1392 (Or. Ct. App. 1995) (35 percent); Ellis v. Ellis, No. 77407 N.Y. App. Div., 1997 WL 35218 at *2 (Jan. 30, 1997) (25 percent); Michael v. Michael, 469 S.E.2d 14, 17 (W. Va. 1996) (25 percent); Kapp v. Kapp, 2005 Ohio App. LEXIS 6144 (Ohio App. 2005), in which the litigation contingency discount was accepted where proof of a pending lawsuit was presented; Rattee v. Rattee, 767 A.2d 415, 146 N.H. 44 (N.H. 2001); L.R.M. v. R.K.M., 46 S.W.3d 24 (Mo. Ct. App. 2001) (32 percent combined discount); and Collier v. Collier, 790 So. 2d 759 (La. Ct. App. 2001) (25 percent combined discount for lack of marketability and contingent liabilities).
66. See, e.g., Howell v. Howell (no amount specified); Neuman v. Neuman, 842 P.2d 575, 579 (Wyo. 1992) (35 percent); Hanson v. Hanson, 86 P.3d 94, 192 Or. App. 422 (Or. Ct. App. 2004) (25 percent); Brown v. Brown, 348 N.J. Super. 466, 792 A.2d 463, 2002 N.J. Super. LEXIS 105 (N.J. Super. 2002); Baltrusis v. Baltrusis, 113 Wash. App. 1037 (Wash. Ct. App. 2002) (25 percent); Ferraro v. Ferraro, 2000 WL 251678 (Va. Ct. App. 2000); Anderson v. Anderson, 2006 Tenn. App. LEXIS 592 (Tenn. App. 2006) (10 percent for marketing costs associated with only a hypothetical sale of minority interest); Hanson v. Hanson, 2005 Alas. LEXIS 166 (Alaska 2005); Kapp v. Kapp, 2005 Ohio App. LEXIS 6144 (Ohio App. 2005) (no discount for contingent transaction costs—broker, legal, accounting fees—where no sale is being contemplated); and Bertuca v. Bertuca, 2007 Tenn. App. LEXIS 690 (Tenn. Ct. App. 2007) (discount disallowed where a sale of the husband’s interest was not “necessary or desirable”).
67. Erp v. Erp, 2007 Fla. App. LEXIS 18726 (Fla. Ct. App. 2007).
68. Extensive references to treatment of tax consequences can be found in Tracy A. Bateman, Divorce and Separation: Consideration of Tax Consequences in Distribution of Marital Property 9, A.L.R. 5th, p. 568, 2000, Lawyers Cooperative Publishing.
69. See, e.g., Buzanell v. Miller, 590 S.E.2d 332, 162 N.C. App. 180, 2004 WL 26524 (N.C. Ct. App. 2004) (consideration of taxes too speculative); In re Marriage of Black, 2001 WL 57999 (Iowa Ct. App. 2001); Guill v. Guill, 2001 WL 770942 (Neb. Ct. App. 2001); Skokos v. Skokos, 40 S.W.3d 768, 344 Ark. 420 (Ark. 2001); Kaiser v. Kaiser, 555 N.W.2d 585 (N.D. 1996) (the deduction of hypothetical tax liabilities rejected); In re Marriage of Czapar, 232 Cal. App. 3d 1308, 284 Cal. Rptr. 41 (1991). It is improper to take into consideration the tax consequences of an order dividing a community asset unless the tax liability is immediate and specific and will arise in connection with the division of the community property.
70. In re Marriage of Hay, 907 P.2d 334 (Wash. Ct. App. 1995).
71. Kaiser v. Kaiser, 474 N.W.2d 63 (N.D. 1991).
72. Granger v. Granger, 579 N.E.2d 1319 (Ind. Ct. App. 1991).
73. Bohl v. Bohl, 657 P.2d 1106 (Kans. 1983). The court’s reasoning seems flawed in that there is nothing inherent in valuing something at expected net liquidation proceeds that would always necessarily reduce that amount to or below cost. In any case, cost is historical and (except for its effect on taxes) irrelevant to the matter of monies available now or in the future.
74. Liddle v. Liddle, 410 N.W.2d 196 (Wis. Ct. App. 1987).
75. Hogan v. Hogan, 796 S.W.2d 400 (Mo. Ct. App. 1990).
76. Hamilton v. Hamilton, 2002 Ohio 2417 (Ohio Ct. App. 2002).
77. See, e.g., Schuman v. Schuman, 658 N.W.2d 30, 265 Neb. 459 (Neb. 2003).
78. See Shannon P. Pratt, “Trapped-In Capital Gains Affects Real-World Value,” Shannon Pratt’s Business Valuation Update, February 1996, pp. 1, 3.
79. See, e.g., Zerbe v. Zerbe, 2005 Ohio 1180 (Ohio Ct. App. 2005) (“A finding of value must be supported by competent, credible evidence. The court cannot take the two extremes presented by the evidence and choose a value somewhere between those two extremes.”); Augoshe v. Lehman, 2007 Fla. App. LEXIS 6367 (Fla. Ct. App. 2007) (“simply splitting the difference” between two divergent appraisals is an “improper method of valuation”); In re Marriage of Keener, 2007 Iowa Sup. LEXIS 13 (Iowa 2007) (“anecdotal evidence is simply an insufficient basis upon which to determine fair market value”); and Pickard v. Pickard, 2006 N.Y. App. Div. LEXIS 9961 (N.Y. App. Div. 2006) (the discount rate was rejected where the rate was selected arbitrarily without support for it).
80. See, e.g., Crosetto v. Crosetto, 918 P.2d 954 (Wash. App. Ct. 1996), in which the court said, “Because the trial court here did not state how it reached the valuation figure, we remand. …”
81. See, e.g., In re Marriage of Bidwell, 12 P.3d 76, 170 Or. App. 239 (Or. Ct. App. 2000) (the court accepted the wife’s expert’s opinion over the husband’s because the husband had not presented expert evidence); In re Marriage of Gabriel, 2005 Cal. App. Unpub. LEXIS 8101 (Cal. Ct. App. 2005); Miller v. Miller, 14 S.W.3d 903, 70 Ark. App. 64 (Ark. Ct. App. 2000); Ballas v. Ballas, 2004 Ohio 5128, 2004 WL 2334329 (Ohio App. 7 Dist. 2004) (the expert’s opinion was given greater weight than that of the business manager); Dunn v. Dunn, 2005 Miss. App. LEXIS 637 (Miss. Ct. App. 2005) (appeals by both spouses were unavailing where neither had hired a business valuation expert); and Mace v. Mace, 818 So. 2d 1130 (Miss. 2002) (where neither spouse hired a business valuation expert, the court recommended that they provide expert valuation evidence on remand).
82. See, e.g., Weinstein v. Weinstein, 2005 Conn. LEXIS 348 (Conn. 2005) (the husband’s failure to disclose the true value of his company’s intellectual property resulted in a finding of blatant and deliberate misrepresentation and reversal); and Stribling v. Stribling, 2005 Miss. App. LEXIS 58 (Miss. Ct. App. 2005) (where “a party fails to provide accurate information, or cooperate in the valuation of assets,” the trial court is “entitled to proceed on the best information available”).
83. Eslami v. Eslami, 591 A.2d 411 (Conn. 1991).
84. Steneken v Steneken, 843 A.2d 344 (N.J. App. 2004), aff’d, 873 A.2d 501, 183 N.J. 290 (N.J. 2005).
85. Sampson v. Sampson, 2004 Mass. App. LEXIS 1223 (Mass. App. Ct. 2004).
86. Champion v. Champion, 54 Mass. App. Ct. 215, 764 N.E.2d 898, 2002 Mass. App. LEXIS 363 (Mass. App. Ct. 2002).
87. Keane v. Keane, 2006 N.Y. LEXIS 3751 (N.Y. 2006).
88. Sander v. Sander, 2006 Conn. App. LEXIS 280 (Conn. Ct. App. 2006).
Chapter 22
1. Proposed DOL Reg. Section 2510.3-18(b)(1)(ii).
2. Donovan v. Cunningham, 716 F.2d 1455 (5th Cir. 1983). See also Barker v. American Mobil Power Corporation, 64 F.3d 1397 (9th Cir. 1995) and Pugh v. Tribune, Nos. 06-3898 and 06-3899 (7th Cir. 2008).
3. Shannon P. Pratt, and Alina V. Niculita, Valuing a Business, 5th ed., McGraw Hill, New York, 2007, p. 814.
4. This guideline considers changes enacted under the Small Business Job Protection Act of 1996 (SBJPA) P. L. 104–188 (see 4.4.2); the Taxpayer Relief Act of 1997 (TRA) P. L. 105–34 (see 4.2.7); the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) P.L. 107-16; and the American Job Creation Act of 2004 (AJCA) P.L. 108-173 (see 4.2.4). Additional guidance pertaining to the examination of both leveraged and nonleveraged ESOPs, including IRC Section 1042 transfers, the partial interest exclusion, and special rules pertaining to Sub S ESOPs can be found at http://www.irs.gov/ustreas/pub/irs-tege/epche80.
5. See ESOP Association, Valuing ESOP Shares, ESOP Association, Washington DC, 2005.
6. IRC Section 409(h)(1)(A) and (B).
7. Rev. Proc. 2004-14.
8. In Armstrong v. LaSalle Bank National Association, 446 F.3d 728 (7th Cir. 2006), Judge Posner reversed the trial court’s award of summary judgment in favor of the defendant trustee’s decision to accept a stock valuation that did not include a discount for lack of marketability. The decision appears to confirm the need to consider this discount, but not the extent.
9. ESOP Valuation, 3rd ed., NCEO, 2005, p. 74.
10. Ibid.
11. See LaRue v. DeWolff, Boberg & Associates, 552 U.S. __ (2008).
12. Foltz v. U.S. News & World Report, Inc., 106 F.R.D. 338 (D.C. Cir. 1984), aff’d in part and vacated in part, remanded, 760 F.2d 1300 (D.C. Cir. 1985), on remand, 613 F. Supp. 634 (D.D.C. 1985) (distributions for 1973 through 1980); and Richardson v. U.S. News & World Report, Inc., 623 F. Supp. 350 (D.C. Cir. 1985) (1981 distributions). (Note: This 80-page opinion is highly instructive reading on both ESOP valuation issues and minority stock valuation issues in general.)
13. Las Vegas Dodge v. United States, 1985 U.S. Dist. LEXIS 21577 1985 WL 6366 (D. Nev. 1985).
14. Howard v. Shay, 1993 U.S. Dist. LEXIS 20153 (C.D. Cal. 1993), revised and remanded by 100 F.3d 1484 (9th Cir. Cal. 1996), cert. denied, 520 U.S. 1237 (1997).
15. Reich v. Valley National Bank of Arizona, 837 F. Supp. 1259, 1993 U.S. Dist. LEXIS 11837 (S.D.N.Y. 1993).
16. Eyler v. Commissioner, T.C. Memo. 1995-123 (T.C. 1995), aff’d 88 F.3d 445 (7th Cir. 1996).
17. Henry v. Champlain Enterprises, 334 F. Supp. 2d 252, 2004 U.S. Dist. LEXIS 18140 (N.D.N.Y. September 3, 2004).
18. Chao v. Hall Holding Co., Inc., 285 F.3d 415, 2002 U.S. App. LEXIS 5929 (6th Cir. April 3, 2002).
19. 239 F. Supp. 2d 820, 2002 U.S. Dist. LEXIS 24829 (C.D. Ill. December 30, 2002).
20. 419 F.3d 626, 2005 U.S. App. LEXIS 17355 (7th Cir. August 17, 2005).
21. 446 F.3d 728 (7th Cir. 2006).
Chapter 23
1. Internal Revenue Service, IRS Revenue Ruling 59-60; American Society of Appraisers, ASA Business Valuation Standards, 2009, p. 27; Shannon P. Pratt with Alina V. Niculita, Valuing a Business: The Analysis and Appraisal of Closely Held Businesses, 5th ed., McGraw-Hill, New York, 2008, pp. 41–42.
2. American Society of Appraisers, ASA Business Valuation Standards, p. 28.
3. The Meat Processing Company (MPC), U.S. Corporation Income Tax Return, 2011, MPC website http://MPC.com/, and interviews with management.
4. Research Department, The Livingston Survey, Federal Reserve Bank of Philadelphia, December 12, 2012, p. 3.