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Comprehensive Guide for the Valuation of Family Limited Partnerships - 3rd Edition


Table of Contents

Preface

About the Authors

I. Overview

II. Disadvantages of the Cost Approach
    A. Use of Average Discounts in Published Studies
    B. Inappropriate Reliance on Case History
III. Selecting Proper Valuation Methodology

    A. Income Approach
    B. Market Approach
    C. Cost (or Asset) Approach
IV. Empirical Data for Income Approach

    A. Marketable Securities
    B. Real Estate
      1. Real Estate Investment Trusts (REITs)
      2. Publicly-Held Limited Partnerships
    C. Real Estate Mutual Funds
    D. Summary
V. Empirical Data for Market Approach

    A. Closed-End Funds
    B. Publicly-Held Real Estate Limited Partnerships
      1. Comparability of Data
      2. Publicly-Held Limited Partnership Market
    C. Summary
VI. Valuation Examples

    A. FLP A - Marketable Securities
      1. Income Approach - FLP A
        a) Determination of Discount Rate
        b) Discounted Net Cash Flow Forecast
        c) Capitalization of Net Cash Flow
      2. Market Approach - FLP A
        a) Selection of Closed-End Funds
        b) Application of Price-to-NAV Ratios
    B. FLP B - Income Producing Real Estate
      1. Income Approach - FLP B
        a) Determination of Discount Rate
          (1) Capital Asset Pricing Model
          (2) Build-Up Method - REIT Returns
          (3) Build-Up Method - Partnership Returns
          (4) Reconciliation of Discount Rate Computations
        b) NCF Forecast - Income Producing Property
      2. Market Approach - FLP B
        a) Sources of Data
          (1) Minority Interest Discount Database™
          (2) Partnership Guideline Reports
        b) Application of Price-to-NAV Ratio - Real Estate
        c) Application of Price-to-GCF Multiple - Real Estate
      3. Reconciliation of Values for FLP B
    C. FLP C - Non-Income Producing Property
      1. Income Approach - FLP C
        a) Determination of Discount Rate
          (1) Build-Up Method - REIT Returns
          (2) Build-Up Method - Publicly-Held Limited Partnership Returns
          (3) Reconciliation of Discount Rate Computation
        b) NCF Forecast - Nonincome Producing Property
          (1) Scenario 1 - Five Year Liquidation Horizon
          (2) Scenario 2 - Ten Year Liquidation Horizon
          (3) Reconciliation of Scenario 1 and 2
      2. Market Approach - FLP C
        a) Selection of Guideline Entities
        b) Selection of Price-to-NAV Ratio
      3. Reconciliation of Values for FLP C
    D. FLP D - Mix of Assets
      1. Income Approach - FLP D
        a) Determination of Discount Rate
        b) Net Cash Flow Projection
          (1) Scenario 1
          (2) Scenario 2
          (3) Reconciliation of Scenarios 1 and 2
      2. Market Approach - FLP D
        a) Selection of Comparable Entities
          (1) Closed-End Funds
          (2) Publicly-Held Limited Partnership Interests
          (3) Application of Price-to-NAV Ratios
VII. Unique Appraisal Assignments

    A. Family Limited Partnerships with Nonmarketable Securities
    B. Valuing Oil & Gas Limited Partnerships
    C. Valuing General Partnership Interests
    D. Valuing Assignee Limited Partnership Interests
    E. Valuing Multiple or Tiered Limited Partnerships
    F. Valuing Family Limited Partnerships with Promissory Notes
VIII. Lack of Marketability

    A. Discounts Observed in Publicly-Held Limited Partnerships
    B. Restricted Stock and Pre-IPO Studies
      1. Required Rate of Return
      2. Use of Restricted Stock Transactions
      3. Use of Pre-IPO Transactions
    C. Determining Impact of Discount for Lack of Marketability
      1. Subjective Considerations
      2. Objective Considerations
      3. Examples
        a) FLP A - Marketable Securities
        b) FLP B - Income Producing Real Estate
        c) FLP C -Nonincome Producing Real Estate
        d) FLP D - Mixed Assets
    D. Conclusion
IX. Summary

X. Tax Court Perspective
    A. Schauerhamer v. Commissioner
    B. Kerr v. Commissioner
    C. Church v. United States of America
    D. Weinberg v. Commissioner
    E. Reichardt v. Commissioner
    F. Harper v. Commissioner
    G. Knight v. Commissioner
    H. Strangi v. Commissioner
    I. Jones v. Commissioner
    J. Dailey v. Commissioner
    K. Hackl v. Commissioner
    L. Harper v. Commissioner
    M. Kimbell v. United States
    N. Summary
XI. Conclusion

XII. Appendix - Partnership Profiles Re-Sale Discount Studies


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