At issue in Giustina was the valuation of a minority interest in a limited partnership that owned approximately 48,000 acres of timber property. The Tax Court heard testimony from the estate’s appraiser and the IRS’s appraiser. Both appraisers relied on customary valuation approaches in valuing the limited partnership interest. Namely, each weighed the valuations under an income capitalization approach, a net asset value approach, and a guideline company approach. The appraisers, however, produced significantly different valuations for the limited partnership interest based on the weight that each accorded to the various valuation approaches.
The Tax Court held that the valuation of the limited partnership interest should be based 75 percent on the income capitalization approach and 25 percent on the net asset valuation approach, which resulted in a value between the two appraisals. Interestingly, the Tax Court weighed the income capitalization approach much more heavily than either of the appraisers, and it completely disregarded the guideline company approach. Additionally, the Tax Court determined based on the testimony of each of the appraisers, a 25 percent lack of marketability discount should be applied with respect to the valuation under the income capitalization approach. However, the Tax Court declined to apply a lack of marketability discount with respect to valuation under the net asset valuation approach and further declined to permit a lack of control discount altogether. In a seemingly novel holding, the Tax Court determined that these discounts were already implicit in the valuation approaches themselves. Given this holding and the substantial sums at stake, we may very well see the case appealed to the Ninth Circuit.