The Tax Court determined the value of a minority interest in a closely held C corporation that held appreciated marketable securities.  The parties disagreed over the appropriate valuation method to use, and the magnitude of adjustments related to built-in gains (“BIG”) tax liabilities.  Discounts for lack of control and lack of marketability were also addressed.

The Tax Court was critical of the application of the capitalization-of-dividends method and performed its own analysis utilizing a NAV method.  Citing Jensen and Litchfield, the Tax Court determined the most reasonable discount for BIG tax liabilities to be derived from a present value approach.

 The decision also provides insight with respect to the Tax Court’s views on the application of accuracy-related penalties under Section 6662, given that it upheld that a “substantial” valuation understatement existed in the instant case.