The parties both appeal the decision of the Supreme Court, which agreed with the special referee that in the valuation of a corporation which held 19 apartment buildings, that no discount for lack of marketability (DLOM) as the application of DLOM would improperly assign Robert’s interest an “illiquid minority interest value” instead of his proportionate share of a financial control level of value.” The appellate court determined that while the Supreme Court erred in assessing that the marketability of the corporation’s real property assets was the same as the marketability of the corporation’s shares as there are added risks and costs of the corporate ownership of real estate not present had the real estate been owned outright. As such, the appellate court adopted a 16% DLOM against the assets of the corporation.
Furthermore, the appellate court addressed the issue of embedded capital gains taxes which would be realized and payable when the properties were sold. Rather than accepting a 0% discount or 100% discount as set forth by the parties, the Supreme Court adopted the methodology approved in Matter of Murphy which calculated the taxes due upon the hypothetical sale in ten years (the assumed holding period) of the properties and applying a present value discount to present day value. The appellate court concurs with the decision of the Supreme Court.