The concept of a blockage discount
in art is borrowed from business valuation.
Specifically, the Tax Court, not wanting to make Smith's estate endure the consequences of a "forced" sale, allowed a 37% blockage discount
, which, essentially.
Within six months after the decedent's death, the executor a) sold 60,000 shares of the stock at $90 per share and b) distributed the balance of the shares to the beneficiaries when the value without a blockage discount
was $95 per share.
4% of Browning-Ferris' outstanding stock, the executor hired a brokerage firm to determine the blockage discount
, which did not complete this task by the estate tax return's extended due date of July 13, 1994.
A blockage discount
is similar to the adjustment that real estate appraisers make when valuing multiple tracks of vacant land or a portfolio of similar properties in one market area.
The co-executors took a 52% blockage discount
for the artwork on the estate tax return and valued it at $12,403,207.
The estate applied a 31% blockage discount
to the value of the stock in each trust, resulting in the value of $4.
Two issues of critical importance in the valuation of property that are most frequently overlooked or misunderstood are blockage discount
and buyer's premium.
In Gillespie, III,(74) although a blockage discount
was appropriate for a 6.
1504-4(b)(2)(iii) provides that, for purposes of the 80-percent of value test generally (as well as in the case of options treated as exercised), all shares of stock within a single class are considered to have the same value and, hence, control premiums and minority and blockage discounts
within a single class are not to be taken into account.