Is Your Share A Minority Position?
Minority Interest

Is Your Share A Minority Position?

In 1993, the IRS issued a new challenge in the fight over estate taxes, this time focusing on valuation discounts. Family attribution & minority interest in a closely held business. The courts have consistently denied that there is family attribution in a minority interest discount situation. Therefore, many closely held businesses make use of these discounts as an estate tool to reduce the amount of taxes owed on shares transferred to heirs. This led the IRS to look for other ways to attack what it perceived as abuses to the system. They did this by introducing the concept of swing vote. In a technical advice memorandum, the IRS stated that a minority block of stock could have swing vote attributes if it could be used in conjunction with another interest to control the voting power. These swing vote attributes could negate, in whole or in part, the minority interest discount. There is a difference of opinion on how much impact ruling will have on the long run. The best strategy for now is to take a second look at any gifting strategies that make use of the minority interest discount to make sure that plan does not create a swing vote situation. Until the courts have decided whether to uniformly adopt the swing vote attribute, it is best to work with valuation expert to protect yourself from IRS.

Minority Interest

If the shares being valued are a minority of a company's total shares, a minority interest discount may be in order. Why? The minority shareholder often has no control over company operations and managerial decisions.