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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Blockage discount. The concept of a blockage discount in art is borrowed from business valuation.
Since that decision in 1975, the Service or the Tax Court has recognized blockage discounts of artworks for gift tax purposes (Calder v.
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.
Because Eddy's shares constituted 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.
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 $4.79 per share.
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 6.54% stock interest in The Washington Post, hypothetical secondary offering costs for underwriting could not be used to further reduce the estate tax value.
[section] 1.1504-4(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.
Market absorption and blockage discounts: In the valuation of a closely held real estate investment holding company, a discount for potential market absorption should be considered.