Karen Kurtz in the November Journal of Taxation

Tax attorney Karen S. Kurtz in the Atlanta Chamberlain Hrdlicka office recently co-authored “Using Closed-Ended Funds to Calculate the Lack-of-Control Discount for Closely Held Businesses” which was published in the Journal of Taxation, Nov 2011.  An expert from the article follows:

The discount (or, in some cases, premium) that the market has applied when valuing closed-end mutual funds has been used as part of the process of calculating lack-of-control discounts for closely held business interests having similar assets to those funds. Nevertheless, the differences between the two types of entities may undercut the reliability of the CEF discount as a benchmark and justify an adjustment.

 An important valuation issue is the trend of applying discounts (and premiums) applicable to closed-end mutual funds (CEFs) to measure lack-of-control discounts for unmarketable, noncontrolling interests in closely held businesses, especially investment partnerships. Many tax advisors are not aware of the ramifications of solely using discounts applicable to CEFs to determine such lack-of-control discounts. As analyzed below, advisors and appraisers should consider whether the managerial and financial differences between CEFs and closely held businesses owning similar assets should result in a higher lack-of-control discount for closely held businesses than for CEFs.

Charles E. Hodges II and Karen S. Kurtz, Using Closed-End Funds to Calculate the Lack-of-Control Discount for Closely Held Businesses, 115 Journal of Taxation No. 05 (Nov. 2011).  The full article can be viewed in the Journal of Taxation or on Checkpoint.

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