Mercer’s Musings #1: USPAP and the Internal Revenue Service

Many years ago, I wrote a column for the Business Valuation Review that the editor, Jay Fishman, FASA, called “Mercer’s Musings.” In this blog and with this post, I reintroduce “Mercer’s Musings” because I would like to reflect on a number of seemingly unsettled issues in the business valuation world. This first musing relates to the need (or not) to comply with the Uniform Standards of Professional Appraisal Practice promulgated by The Appraisal Foundation in gift and estate tax appraisals prepared for the Internal Revenue Service.

USPAP Standards Rule 9-4 Creates a Problem for Business Appraisers

There were significant changes in Standards Rule 9-4 of the Uniform Standards of Professional Appraisal Practice regarding the development of business appraisals between 2005 USPAP and 2006 USPAP. The changes relate to moving from following procedures and considering approaches to a focus on developing “credible appraisal results” and analyzing “the effect on value, if any” or a number of quite specific valuation factors.

There were changes to Standards Rule 9-4(a) and 9-4(b) that shift emphasis to credible appraisal results and to introduce a focus on intangible assets for the first time. Standards Rules 9-4(c) and 9-4(d) were completely new and require appraisers to “analyze the effect on value” of a number of very specific factors that we will discuss in this post.

Appraisers who must follow USPAP, and that includes all members of the American Society of Appraisers and any appraisers conducting appraisals for gift and estate tax purposes or for other purposes involving the federal government, these standards apply. The rules apply, practically, to almost all appraisers, including those holding ABV and CVA designations.

And now for a bold conclusion at the outset: Many appraisers who focus on using restricted stock studies and pre-IPO studies as a basis for determining marketability discounts for illiquid minority interests have historically not been and are currently not providing standards-compliant appraisals for their clients.

And that’s a problem.

Mercer’s Musings #5: Pre-IPO Studies/Discounts and Marketability Discounts

My musings on the use of restricted stock discounts to estimate marketability discounts (or DLOMs) have led me to the conclusion: Restricted stock studies/discounts cannot be used to estimate DLOMs in any credible, standards-compliant manner. This fifth post in the musings series takes a look at the usefulness of pre-IPO discounts in estimating marketability discounts.

Mercer’s Musings #4: Factors to Consider in Valuing Partial Ownership Interests

Following “Mercer’s Musings” 1-3, Mercer’s Musing #4 examines the guidance found in “Procedural Guideline -2 (PG – 2) Valuation of Partial Ownership Interests” in the ASA Business Valuation Standards.  Procedural Guidelines (PG) are designed to provide more detailed guidance for consideration by business appraisers than found in the base standards themselves.

There is a great deal more to valuing illiquid minority interests than “guessing” at a marketability discount based on vague references to dated and non-comparable restricted stock transactions or studies. All appraisers would be well-served to read PG – 2 Valuation of Partial Ownership Interests in the ASA Business Valuation Standards.  Doing so should provide a different and more realistic view of the valuation of illiquid minority interests of private companies than is held by many appraisers.

Mercer’s Musings #2: Using Restricted Stock Studies to Support Marketability Discounts

In “Mercer’s Musings #2,” the focus shifts to the examination of restricted stock studies and their application in determining marketability discounts for gift and estate tax appraisals, offering valuable insights for appraisers across all credential spectrums. Highlighting the inherent challenges of such studies, I underscore the lack of economic relevance these studies hold in contemporary valuation scenarios, particularly emphasizing their disconnect with current private company valuations. Through an analysis and a hypothetical valuation scenario, I invite readers to explore the nuanced complexities of applying marketability discounts, advocating for a quantitative approach informed by common sense, judgment, and reasonableness.

Beway and Giaimo: Is New York Headed in the Right Direction?

In the final post in this series, we examine the actual marketability discounts concluded in statutory fair value matters since about 1985.  The analysis will differentiate between appellate-level and trial court cases that stand and were not appealed.  The results will likely be surprising for those interested in statutory fair value in New York.

Appraisal Review #8: A Story of Review from the Archives

This post recalls an appraisal review assignment of mine from many years ago.  After the last seven posts where we have talked specifically about appraisal review from a broad perspective, it is appropriate to discuss one specific case where appraisal review was key to arriving at a settlement to a bitterly fought buy-sell agreement dispute.

Appraisal Review #4: Definitions of Fair Market Value

In this fourth post in our series on Appraisal Review, we discuss definitions of fair market value. Fair market value is the most common standard of value employed by business appraisers. It is the standard for gift and estate tax and charitable giving matters as well as for many other appraisal requirements involving the federal government. And it is the most frequently used standard of value in buy-sell agreements and in other business arrangements requiring opinions of value. Despite its frequent employment, it is my observation that fair market value is not nearly as well-understood by business appraisers, attorneys, and courts as it should be.

Appraisal Review #2: Before the Definition

An Examination Through the Lens of Appraisal Review

In a post last week, I wrote about appraisal review, indicating that this important topic would be a new focus for  In that post, I addressed appraisal review, not as something mechanical that appraisers do, but much more broadly.  With this post, we begin to look at the standard of value of fair market value through the lens of appraisal review.