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T.C. Memo. 2003-280

UNITED STATES TAX COURT

PETER S. PERACCHIO, Petitioner v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 10470-01.

Filed September 25, 2003.

P transferred limited partner interests in a

family limited partnership (PT) to a family trust (T)

pursuant to two separate transactions. In one of the

transactions, P transferred a 45.47-percent limited

partner interest to T for no consideration. In the

other transaction, P transferred a 53.48-percent

limited partner interest to T in exchange for T’s

promissory note in the amount of $646,764.

Held: Fair market value of the transferred PT

interests determined. See sec. 2512, I.R.C.

Eric M. Nemeth, Michael J. Mulcahy, and Brian C.

Bernhardt, for petitioner.

John W. Stevens, for respondent.

- 2 MEMORANDUM FINDINGS OF FACT AND OPINION

HALPERN, Judge:

By notice of deficiency dated May 25, 2001

(the notice of deficiency), respondent determined a deficiency in

Federal gift tax for calendar year 1997 with respect to

petitioner in the amount of $328,317.

petition for redetermination.

Petitioner timely filed a

The dispute involves the value of

interests in a family limited partnership transferred by

petitioner to a family trust.

Unless otherwise noted, all section references are to the

Internal Revenue Code in effect on the date of the transfers, and

all Rule references are to the Tax Court Rules of Practice and

Procedure.

All dollar amounts have been rounded to the nearest

dollar.

FINDINGS OF FACT

Some facts are stipulated and are so found.

The stipulation

of facts, with accompanying exhibits, is incorporated herein by

this reference.

At the time he filed the petition, petitioner

resided in Grosse Pointe Woods, Michigan.

Formation of the Trust and the Partnership

On November 25, 1997 (the valuation date), petitioner, as

settlor, and petitioner’s wife, as trustee, executed a trust

agreement creating the Peracchio Family Trust (the trust).

the same day, petitioner, the trust, and petitioner’s son, John

R. Peracchio, executed an agreement of limited partnership (the

partnership agreement) with respect to Peracchio Investors, L.P.,

- 3 a Delaware limited partnership (the partnership).

Petitioner

contributed cash and securities with a designated value of

$2,013,765 to the partnership in exchange for a 0.5-percent

general partner interest and a 99.4-percent limited partner

interest in the partnership, which, collectively, represented

2,013.765 partnership units.

Petitioner’s son contributed $1,000

to the partnership in exchange for a 0.05-percent general partner

interest in the partnership, which represented one partnership

unit.

The trust contributed $1,000 to the partnership in

exchange for a 0.05-percent limited partner interest in the

partnership, which also represented one partnership unit.

Transfers of Partnership Units

Also on the valuation date, petitioner made three transfers

of partnership units.

Petitioner gratuitously transferred 9.0788

partnership units (representing 0.45 percent of all partnership

units outstanding) to his son, to be held in the capacity of a

general partner.

Petitioner also gratuitously transferred

916.667 partnership units (representing 45.47 percent of all

partnership units outstanding) to the trust, to be held in the

capacity of a limited partner.

Petitioner transferred an

additional 1,077.9409 partnership units (representing 53.48

percent of all partnership units outstanding) to the trust, to be

held in the capacity of a limited partner, in exchange for the

trust’s promissory note in the amount of $646,764.

After the

- 4 foregoing transfers, the percentage ownership of the partnership

was as follows:

General Partners

Peter S. Peracchio

John R. Peracchio

Limited Partners

Peter S. Peracchio

Peracchio Family Trust

Total

0.05%

0.50%

0.45%

99.00%

100.00%

Partnership Assets

The partnership’s assets on the valuation date consisted

entirely of cash and marketable securities.1

The partnership’s

domestic stock portfolio on that date consisted of shares in 44

companies, with no apparent concentration in any particular

industry.

Relevant Provisions of the Partnership Agreement

Among other things, the partnership agreement provides as

follows:

The partnership will continue in existence until November

25, 2047 (the termination date), unless sooner terminated in

accordance with the terms of the partnership agreement.

limited partner may withdraw his capital from the partnership

The partnership held certain marketable securities

indirectly through investment funds, including “open-end”

investment funds. We understand from the expert reports received

into evidence in this case that, although shares of open-end

investment funds are not themselves publicly traded, a holder

thereof generally can liquidate his investment at any time by

tendering his shares to the fund for repurchase at a price equal

to their pro rata share of the fund’s net asset value (NAV).

- 5 prior to the termination date without the written consent of the

general partners.

Partners may freely transfer their partnership units to or

for the benefit of certain family members and charitable

organizations (permitted transferees).

A partner desiring to

transfer his partnership units to someone other than a permitted

transferee must first offer those units to the partnership on the

same terms and conditions.

The partnership then has 30 days to

exercise its option to purchase such units.

Regardless of the

identity of the transferee, no transferee of partnership units

can attain the legal status of a partner in the partnership

without the unanimous consent of all general partners.

Limited partners have no right to participate in the

management of the partnership’s affairs, and partnership

distributions are subject to the discretion of the general

partners.

The Gift Tax Return

Petitioner timely filed Form 709, United States Gift (and

Generation Skipping Transfer) Tax Return, for 1997 (the Form

709).

In a statement attached to the Form 709, petitioner

reported his gratuitous transfer of 9.0788 partnership units to

his son at a value of $9,070.

In the same statement, petitioner

reported his gratuitous transfer of 916.667 partnership units to

the trust at a value of $550,000.

In another attachment to the

Form 709, petitioner disclosed that he had determined the value

- 6 of his gratuitous transfer to the trust by (1) multiplying the

number of partnership units transferred (916.677) by their

designated “per unit” value of $1,000, and (2) applying a

combined discount of 40 percent (for lack of control and lack of

marketability) to the resulting figure.

The Notice of Deficiency

By the notice of deficiency, respondent determined a

deficiency in Federal gift tax with respect to petitioner in the

amount of $328,317, based primarily on an increase in 1997

taxable gifts in the amount of $797,843.2

Specifically,

respondent (1) increased the value of petitioner’s gratuitous

transfer to the trust from $550,000 to $916,667, and (2)

determined an additional gift in the amount of $431,176,

representing the amount by which, according to respondent, the

value of the additional 1,077.9409 partnership units transferred

by petitioner to the trust exceeded the consideration received

therefor.3

Respondent based his determination on four alternative

theories:

(1) that the partnership lacks economic substance and

Respondent also determined that, in preparing the Form

709, petitioner failed to account for $70,500 of taxable gifts

made in prior years. Petitioner does not dispute that

determination and has paid the portion of the asserted deficiency

(plus interest) attributable thereto.

Respondent did not adjust the value of petitioner’s

gratuitous transfer of 9.0788 partnership units to his son.

- 7 therefore should be disregarded for Federal gift tax purposes,

(2) that the partnership agreement should be treated as a

restriction on the right to sell or use property (i.e., the

property underlying the transferred partnership units) which must

be disregarded under section 2703(a)(2) in determining the

Federal gift tax value of such property, (3) that the provision

in the partnership agreement restricting a limited partner’s

ability to liquidate his interest by withdrawing from the

partnership should be treated as an applicable restriction under

section 2704(b) which must be disregarded in determining the

Federal gift tax value of the transferred partnership units, and

(4) that in determining the fair market value of the transferred

partnership units under the general valuation rule of section

2512, no discounts for lack of control and lack of marketability

are warranted.

Respondent has since abandoned the first three of

those four alternative theories and has modified his position

with respect to the remaining theory to allow for a 4.4-percent

discount for lack of control and a 15-percent discount for lack

of marketability.

OPINION

Introduction

We must determine the fair market value, as of the date of

transfer, of 45.47-percent and 53.48-percent limited partner

- 8 interests (the gifted interest and the sold interest,4

respectively, and, collectively, the transferred interests) in

Peracchio Investors, L.P. (the partnership) transferred by

petitioner to the Peracchio Family Trust (the trust) in separate

transactions occurring on November 25, 1997 (the valuation date).

The parties agree that, because the partnership’s assets on the

valuation date consisted entirely of cash and marketable

securities, the partnership’s net asset value (NAV) on that date

is the appropriate starting point for determining the fair market

value of the transferred interests.

The parties further agree

that, in valuing the transferred interests, it is appropriate to

discount each interest’s pro rata share of the partnership’s NAV

to reflect the lack of control and lack of marketability inherent

in the transferred interests.

The parties disagree on the

magnitude of those discounts.

For purposes of reporting the

value of the gifted interest on his Federal gift tax return and

establishing the consideration for the sold interest, petitioner

applied a combined discount of 40 percent.

Respondent contends

that 4.4-percent and 15-percent discounts for lack of control and

lack of marketability, respectively, are appropriate, yielding a

combined discount (applying the separate discounts serially) of

18.74 percent.

We use the term “sold interest” solely for descriptive

convenience (i.e., without regard to the proper characterization,

for Federal gift tax purposes, of petitioner’s transfer of that

interest).

- 9 Petitioner bears the burden of proof.5

II.

Rule 142(a)(1).

Law

Section 2501(a) imposes a tax on the transfer of property by

gift.

Section 2512(a) provides that, if a gift is made in

property, the value of the property on the date of the gift is

considered the amount of the gift.

Section 25.2512-1, Gift Tax

Regs., provides that the value of property for Federal gift tax

purposes is “the price at which such property would change hands

between a willing buyer and a willing seller, neither being under

any compulsion to buy or sell, and both having reasonable

knowledge of relevant facts.”

The willing buyer and willing

seller are hypothetical persons, rather than specific individuals

or entities, and their characteristics are not necessarily the

same as those of the donor and the donee.

Estate of Newhouse v.

Commissioner, 94 T.C. 193, 218 (1990) (citing Estate of Bright v.

Petitioner does not raise the applicability of sec.

7491(a), which operates to shift the burden of proof to the

Commissioner in certain circumstances. See Rule 142(a)(2).

However, petitioner argues for the first time in his posttrial

reply brief that, under general principles of Federal tax law,

respondent bears the burden of proof on the ground that the

notice of deficiency is arbitrarily excessive and without

foundation. As petitioner did not timely raise that issue, we

decline to consider it. See, e.g., Graham v. Commissioner, 79

T.C. 415, 423 (1982) (“It is well settled that this Court will

not consider issues raised for the first time on brief when to do

so prevents the opposing party from presenting evidence or

arguments that might have been presented if the issue had been

timely raised.”).

- 10 United States, 658 F.2d 999, 1006 (5th Cir. 1981)).6

The

hypothetical willing buyer and willing seller are presumed to be

dedicated to achieving the maximum economic advantage.

Estate of

Newhouse, supra at 218.

III.

Expert Opinions

Introduction

In this case, the parties rely exclusively on expert

testimony to establish the appropriate discounts to be applied in

determining the fair market value of the transferred interests.

Of course, we are not bound by the opinion of any expert witness,

and we may accept or reject expert testimony in the exercise of

our sound judgment.

Helvering v. Natl. Grocery Co., 304 U.S.

282, 295 (1938); Estate of Newhouse v. Commissioner, supra at

217.

Although we may largely accept the opinion of one party’s

expert over that of the other party’s expert, see Buffalo Tool &

Die Manufacturing Co. v. Commissioner, 74 T.C. 441, 452 (1980),

we may be selective in determining what portions of each expert’s

opinion, if any, to accept, Parker v. Commissioner, 86 T.C. 547,

562 (1986).

Finally, because valuation necessarily involves an

approximation, the figure at which we arrive need not be directly

traceable to specific testimony if it is within the range of

Although the cited cases involved the Federal estate tax,

it is well settled that the Federal estate tax and the Federal

gift tax, being in pari materia, should be construed together.

See, e.g., Shepherd v. Commissioner, 283 F.3d 1258, 1262 n.7

(11th Cir. 2002) (citing Harris v. Commissioner, 340 U.S. 106,

107 (1950)), affg. 115 T.C. 376 (2000).

- 11 values that may be properly derived from consideration of all the

evidence.

Estate of True v. Commissioner, T.C. Memo. 2001-167

(citing Silverman v. Commissioner, 538 F.2d 927, 933 (2d Cir.

1976), affg. T.C. Memo. 1974-285).

Petitioner’s Experts

Petitioner offered Timothy R. Dankoff and Charles H. Stryker

as expert witnesses to testify concerning the value of the

transferred interests.

Mr. Dankoff is a partner in Plante &

Moran, LLP, an accounting and management consulting firm.

He is

accredited as a senior appraiser by the American Society of

Appraisers and has been involved in business valuation activities

since 1986.

Mr. Stryker is a partner in the valuation and

appraisal group of BDO Seidman, LLP, an accounting and consulting

firm.

He has been performing valuation services for

approximately 25 years.

The Court accepted Mr. Dankoff and Mr.

Stryker as experts in valuation and received into evidence as

their expert testimony their respective written analyses

regarding the value of the transferred interests.

In his written report, Mr. Dankoff concludes that, based on

a 7.7-percent minority interest discount and a 35-percent

marketability discount, the fair market values of the gifted

interest and the sold interest on November 30, 1997 (5 days after

the valuation date), were $550,000 and $646,764, respectively.

Mr. Stryker concludes in his written report that, based on a 5-

- 12 percent minority interest discount and a 40-percent marketability

discount, the fair market value of the gifted interest on the

valuation date was $522,609.

Mr. Stryker did not separately

calculate the fair market value of the sold interest.

Respondent’s Expert

Respondent offered Francis X. Burns as an expert witness to

testify concerning the value of the transferred interests.

Mr.

Burns is managing director of InteCap, Inc., a financial

consulting firm that specializes in valuation services.

He has

been performing valuation services for approximately 15 years and

has testified as an expert in several valuation cases.

The Court

accepted Mr. Burns as an expert in valuation and received into

evidence as his expert testimony his written analysis regarding

the value of the transferred interests.

In his written report, Mr. Burns concludes that, based on a

4.4-percent minority interest discount and a 15-percent

marketability discount, the fair market values of the gifted

interest and the sold interest on the valuation date were

$742,071 and $872,794, respectively.

IV.

Discussion

Net Asset Value of the Partnership

Mr. Dankoff’s firm valued the assets petitioner contributed

to the partnership (the contributed assets) at $2,013,765.

his written report, Mr. Dankoff acknowledges that such figure

- 13 (upon which petitioner’s other expert, Mr. Stryker, relied as

well)7 is based on values reported in brokerage account

statements as of November 30, 1997 (5 days after the valuation

date).

Respondent’s expert, Mr. Burns, concludes in his written

report that the value of the contributed assets on the valuation

date was $2,008,370.8

regard.9

We accept Mr. Burns’s conclusion in that

Taking into account the $2,000 in cash contributed by

the other partners of the partnership, we conclude that the

partnership’s NAV on the valuation date was $2,010,370.

Minority Interest (Lack of Control) Discount

Introduction

Pursuant to the partnership agreement, a hypothetical buyer

of all or any portion of the transferred interests would have

limited control of his investment.

For instance, such holder (1)

would have no say in the partnership’s investment strategy, and

(2) could not unilaterally recoup his investment by forcing the

partnership either to redeem his interest or to undergo a

complete liquidation.

The parties agree that the hypothetical

Mr. Stryker also inappropriately added approximately $640

of interest earned by the partnership in December 1997.

Mr. Burns actually identifies that figure as the

partnership’s NAV. In doing so, he overlooks the $2,000

contributed by the other partners, which the parties have

stipulated.

Although the parties stipulated that, for purposes of the

notice of deficiency, respondent relied on the valuation of the

contributed assets by Mr. Dankoff’s firm, the parties did not

stipulate the accuracy of that figure.

- 14 “willing buyer” of a transferred interest would account for such

lack of control by demanding a reduced sales price; i.e., a price

that is less than the interest’s pro rata share of the

partnership’s NAV.

Comparison to Closed End Investment Funds

Overview

Each expert witness determined a minority interest discount

for the transferred interests by reference to shares of publicly

traded, closed end investment funds, which typically trade at a

discount relative to their share of fund NAV.10

The idea is

that, since such shares (by definition) enjoy a high degree of

marketability, those discounts must be attributable, at least to

some extent, to a minority shareholder’s lack of control over the

investment fund.11

We understand from the expert reports received into

evidence in this case that, unlike a shareholder of an open-end

fund (and similar to a holder of a limited partner interest in

the partnership), a shareholder of a closed end fund cannot

obtain the liquidation value of his investment (i.e., his pro

rata share of the fund’s NAV) at will by tendering his shares to

the fund for repurchase.

That there are other factors involved in the pricing of

closed end fund shares is evidenced by the fact that shares of

some funds trade at a premium relative to their share of fund

NAV. In his written report, Mr. Burns suggests that positive

pricing factors include heightened investor interest in the

specific attributes of a fund, while additional negative pricing

factors (i.e., in addition to lack of control) include fund

management fees and administration fees. Absent any further

refinement of the data contained in the record, we assume that,

within each sample of closed end funds we consider in our

analysis, such positive factors and additional negative factors

(continued...)

- 15 Both Mr. Dankoff and Mr. Burns determine a minority interest

discount factor for each type of investment held by the

partnership, based (to the extent possible) on discounts observed

in shares of closed end funds holding similar assets.12

They

then determine their respective minority interest discounts for

the transferred interests by calculating the weighted average of

such factors, based on the partnership’s relative holdings of

each asset type.

That is an approach we have previously followed

in the context of investment partnerships, see McCord v.

Commissioner, 120 T.C. 358, 376-387 (2003), and we shall do so

again here.

Partnership Asset Categories

Both Mr. Dankoff and Mr. Burns divide the assets of the

partnership into five basic categories:

cash and money market

funds, U.S. Government bond funds, municipal bonds, domestic

equities, and foreign equities.

We utilize those categories in

our analysis, except that we divide the “municipal bonds”

category into “national” and “Michigan” subcategories.

(...continued)

roughly offset each other.

Although petitioner’s other expert, Mr. Stryker,

purports to derive his minority interest discount from discounts

observed in shares of closed end funds, his methodology is

comparatively both imprecise (his 5-percent discount is not

statistically derived from observed discounts) and incomplete (he

considers only domestic equity funds). For those reasons, we

give no weight to that portion of Mr. Stryker’s testimony.

- 16 c.

Partnership Assets in Each Category

In his written report, Mr. Burns includes a list of

partnership investments (and their values as of the valuation

date) by asset category.

That list, as modified by the

aforementioned refinement of the “municipal bonds” category and

two additional classification changes13 (as well as the addition

of $2,000 to the “Cash and Money Market Funds” category to

reflect contributions by partners other than petitioner, see

supra note 8), yields the following profile of partnership assets

as of the valuation date:

Asset Type

FMV

Percentage

Cash & money market funds

U.S. Government bond funds

State & local bonds (MI)

Natl. Muni bond funds

Domestic equities

Foreign equities

Total

$883,622

7,988

41,750

101,145

877,179

98,686

$2,010,370

44.0

0.4

2.1

5.0

43.6

4.9

100.0

Date of Price/NAV Data

Both Mr. Dankoff and Mr. Burns obtain their closed end fund

data from tables prepared by Lipper Analytical Services (Lipper)

and published in Barron’s.

However, Mr. Dankoff relies on data

as of October 24, 1997, while Mr. Burns utilizes data as of

Because “money market fund” is a term of art, see 17

C.F.R. sec. 270.2a-7(b) and (c) (1997), we have also reclassified

“Fidelity MI Muni Money Market” and “Short Term Income FundGovt.” (listed by Mr. Burns as a municipal bond fund and a U.S.

Government bond fund, respectively) as money market funds, which

is how they are classified in brokerage statements introduced

into evidence.

- 17 November 21, 1997.

Absent any explanation from Mr. Dankoff as to

why it would be more appropriate for us to use his less

contemporaneous data, we utilize Mr. Burns’ price and NAV data in

our analysis.

Samples of Closed End Funds

Cash and Money Market Funds

Both Mr. Dankoff and Mr. Burns implicitly recognize the lack

of an appropriate sample of closed end funds from which to derive

a minority interest discount factor for the “cash and money

market funds” asset category.

In his written report, Mr. Dankoff

assigns a 5-percent discount factor to that asset category and

notes that such figure is “[j]udgmentally determined recognizing

the relative risk/return tradeoff of this asset category vis a

vis U.S. Government Bond Funds”.

Mr. Burns assigns a 2-percent

discount factor to the “cash and money market funds” asset

category, noting without further explanation that such figure is

an estimate.

While we find neither expert persuasive on this

issue, we utilize a 2-percent discount factor in our analysis on

the grounds that (1) respondent has effectively conceded that a

discount factor of up to 2 percent would be appropriate, and (2)

petitioner has failed to carry his burden of persuading us that a

figure in excess of 2 percent would be appropriate.

- 18 ii.

U.S. Government Bond Funds14

Mr. Burns’ written report includes a copy of the

aforementioned Lipper closed end fund table published in the

November 24, 1997, edition of Barron’s (the Lipper table).

That

table lists 13 funds under the heading “U.S. Gov’t Bond Funds”

and contains NAV data for 12 of those funds.15

Mr. Dankoff

winnows that sample to seven unidentified funds, apparently on

the basis of “outliers and asset homogeneity with the subject

assets”.

Mr. Dankoff offers no data in support of his refinement

of the sample, and we see no obvious “outliers” in the group.

Accordingly, we include in our sample (as did Mr. Burns) all 12

of the funds for which NAV data is set forth in the Lipper table.

iii.

State and Local Bonds (Michigan)

The Lipper table lists five Michigan funds under the heading

“Single State Muni Bond”.

We include in our sample (as did Mr.

Dankoff, apparently) all five of those funds.16

The partnership’s lone investment in U.S. Government

bonds on the valuation date was itself in the form of shares of a

closed end investment fund, Putnam Intermediate Government (PGT).

While it may be more appropriate under these circumstances simply

to utilize that fund’s price-to-NAV discount in our analysis

(rather than a discount derived from a sample of funds), the

record does not contain that information.

See supra note 14.

Although Mr. Dankoff does not identify the funds

included in his sample, he does indicate that his sample contains

five funds. Mr. Burns did not create a separate sample of single

State funds invested in Michigan-based obligations.

- 19 iv.

National Municipal Bond Funds

The Lipper table lists 99 funds under the heading “National

Muni Bond Funds” and contains NAV data for 81 of those funds.

we see no obvious outliers in the data, we include all 81 of

those funds in our sample.17

Domestic Equities

The Lipper table lists 24 funds under the heading “General

Equity Funds” and 21 funds under the heading “Specialized Equity

Funds”.

Mr. Dankoff apparently included both types of funds in

his sample, which is comprised of 44 funds.

Mr. Burns, on the

other hand, limited his sample to general equity funds.

referenced in our findings of fact, the partnership’s domestic

stock portfolio was widely diversified on the valuation date.

therefore follow Mr. Burns’ lead and limit our sample to general

equity funds.

We further limit our sample by excluding two funds

from the Lipper table which were trading at unusually high

premiums relative to the other domestic equity funds listed in

that table.18

We cannot deduce from the record whether Mr. Burns

included all 81 of those funds in his sample. However, we note

that the average discount of Mr. Burns’s sample (3.3 percent) is

very close to the average discount of our sample (3.4 percent).

Mr. Dankoff did not create a separate sample of national

municipal bond funds.

Shares of “MFS Special Val” (MFV) and “NAIC Growth”

(GRF) were trading at premiums of 27.3 percent and 51.3 percent,

respectively. No other general equity fund listed in the Lipper

(continued...)

- 20 vi.

Foreign Equities

The Lipper table lists 91 funds under the heading “World

Equity Funds” and contains NAV and price data for 89 of those

funds.19

Unlike Mr. Burns, we exclude from our sample three

funds from the Lipper table which were trading at unusually high

premiums relative to the other foreign equity funds listed in

that table.20

Representative Discount Within the Range of Sample

Fund Discounts

Mr. Dankoff calculates the mean (average) discount and the

median (midpoint) discount with respect to each of his fund

samples.

In each instance, the median discount is greater than

the mean discount.

Mr. Dankoff opts to use the median, rather

than the mean, discount with respect to each sample for purposes

of determining a minority interest discount factor for each

(...continued)

table was trading at a premium greater than 11.1 percent.

By contrast, discounts among general equity funds listed in

the Lipper table showed less variation, ranging from 2.1 percent

to 26.4 percent and averaging 12.8 percent.

Mr. Dankoff inexplicably derives his sample from the

“World Income Funds” (global bond funds) listed by Lipper.

Shares of “Thai Capital” (TC), “Malaysia” (MF), and

“Thai” (TTF) were trading at premiums of 35.1 percent, 36

percent, and 55.7 percent, respectively. No other world equity

fund listed in the Lipper table was trading at a premium greater

than 21.9 percent.

By contrast, discounts among world equity funds listed in

the Lipper table showed less variation, ranging from 1.6 percent

to 31.3 percent and averaging 16.8 percent.

- 21 corresponding asset category of the partnership.

At trial, he

testified that medians “in my opinion are often more relevant

[than means] because it takes outliers out of the equation”.

However, Mr. Dankoff’s written report suggests that he may have

accounted for outliers (by excluding them from his samples) prior

to determining sample medians:

“After adjusting for outliers and

asset homogeneity with the subject assets, we then calculated a

weighted average median discount”.

In any event, Mr. Dankoff

eventually conceded at trial that “I don’t think I have a good

reason as to why one was better than the other, and I think

either one [median or mean] could have been used.”

Because it

seems more straightforward to us to account for obvious outliers

by excluding them from the samples in question, we utilize the

mean discount from each of our samples as the minority interest

discount factor for each corresponding asset category of the

partnership.

Minority Interest Discount Factor for Each Asset