Trusts and Estates

Ca. Trs. & Estates Quarterly 2020, Volume 26, Issue 4

GRIEVE V. COMMISSIONER: DEATH OF THE MINORITY PREMIUM MODEL (TAXPAYERS DODGE A BULLET)

By Bruce Givner, Esq.*

I. INTRODUCTION

At least as far back as 2011, the Internal Revenue Service began postulating the so-called "minority premium model" for fractional interest valuation.1 The minority premium model flips traditional fractional interest valuation on its head by focusing not on what discount is applicable to a transferred fractional interest, but rather what premium would apply to a minority interest if the majority owner sought to obtain total control of the entity. Conceptually, the minority premium model is perhaps best summarized by Judge James Halpern of the United States Tax Court, who opined, in essence, why would a 99% interest holder be willing to sell at a 30% discount when they could instead pay a small premium to the 1% interest holder and then own everything? Wouldn’t the 99% owner rather pay a little to own everything than lose a lot to sell the 99% interest at a discount?2

A. Example Favoring Taxpayer

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