The Estate of Charlotte Dean Temple
The Estate of Charlotte Dean Temple in United States District Court (No. 9:03 CV 165(TH) was adjudicated on March 10, 2006. This was a civil action for recovery of federal gift taxes and related interest. Plaintiff Arthur Temple ("Temple") individually and as executor of the estate of his wife, Charlotte Dean Temple paid gift taxes on various gifts during the period 1997 - 1998 which upon audit were deemed to be undervalued. Temple paid the assessments and filed claims for a refund.
There were four entities at issue in this case: Ladera Land, Ltd ("Ladera Land"); Boggy Slough
West, LLC ("Boggy Slough"); Temple Investments, LP; and Temple Partners, LP (collectively the "Temple Partnerships"). All four entities were asset holding entities: one LLC and three partnerships, all appropriately valued based on the underlying net asset value approach. As the Court saw it, "A critical factor in this case is determining the appropriate diminution in value between a hypothetical willing buyer and a hypothetical willing seller." In other words, the key analytical factors in dispute were the prospects for a minority interest discount and a marketability discount.
Ladera Land
For an analysis of the appropriate discounts for Ladera Land, Temple engaged the services of appraiser Nancy M. Czaplinski. Net asset values do not appear to have been in dispute. Czaplinski utilized the net asset value approach to this entity, although the Court chided her for discussing the appraisal only with Temple's attorney, and not with any principals of the entity.
Minority Interest Discount
Czaplinski selected a 25% minority interest discount, based on "the inverse of the premium for control", which in turn was derived from Mergerstat data. Czaplinski testified in court that the Mergerstat data is a study of operating companies but that she classified Ladera Land as a holding company.
Marketability Discount
Czaplinski utilized the Quantitative Marketability Discount Model (QMDM) to assess the lack of marketability discount for Ladera Land. She assumed the following input items to implement the QMDM: 1) the holding period of a Ladera Land partnership interest is between 10 and 15 years; 2) the minority investor requires a holding period return on investment of 18-20%; 3) Ladera Land's distribution yield is 5%; and 4) the expected appreciation of Ladera Land's real property is 3%. These parameters provide a range of marketability discounts from 47% to 61%, as shown in Table 1.