LandValues,”workingpaper,FederalReserveBankofSan
Francisco, 2004.
64 Inrecentyears,someappraisershaveshiftedtousingthe
discountsonstocksinIPOsintheyearspriortotheoffering.
Thediscountissimilar inmagnitudetotherestrictedstock
discount.
65 As an example, in one widely cited tax court case
(McCord vs. Commissioner, 2003), the expert for the
taxpayerusedadiscountof 35 percentthathebackedupwith
four restricted stock studies.
66 The courtcase wasMcCord vs. Commissioner. In the
case,thetaxpayer’sexpertarguedforadiscountof 35 percent
basedontherestrictedstockstudies.TheIRSarguedfora
discountof 7 percent,onthebasisthatabigportionofthe
observeddiscountinrestrictedstockandIPOstudiesreflects
factorsotherthanliquidity.Thecourtultimatelydecidedon
an illiquidity discount of 20 percent.
67 For more on the value of control, see Chapter 13.
68 In a 1993 study, David Chaffe used this approach to
estimateilliquiditydiscountsrangingfrom 28 to 49 percent
foran asset, usingtheBlack-Scholes optionpricing model
and volatilities ranging from 60 to 90 percent for the
underlying asset.
69 Thereisasimplewaytoillustratethatthisputoptionhas
nothingtodowithliquidity.Assumethatyouownstockina
liquid, publicly traded companyand that thecurrent stock
priceis$50.A2-yearputoptiononthisstockwithastrike