Blockage Discount

Blockage Discount

A discount that an institutional investor applies to a block trade with another institutional investor. That is, if an institutional investor wishes to divest itself of all or most of its holding in a security, it may apply a blockage discount to sell it more quickly. This has the added advantage of not causing a crash in the price of the security because of increased trading volume because the blockage discount causes a trade below the market price.
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The concept of a blockage discount in art is borrowed from business valuation.
Also, the IRS has challenged blockage discounts applied by taxpayers to collections of artworks,
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.
With the blockage discount, the stock's date-of-death value would be $1.
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.
a specialty valuation firm, where he directed the firm's restricted stock and blockage discount practice, and oversaw creation of "The FMV Restricted Stock Study.
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.
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.
Emory Business Valuation provides independent valuation services for businesses and individuals needing appraisals of estates, gifts, employee stock ownership plans, stock options, voting trusts, buy/sell agreements, blockage discounts, corporate planning, sales of businesses, mergers, spin-offs, partnerships, limited liability companies, divorces, nuptial agreements, holding companies and other transactions.