Valuation Issues - Sample Questions 1 - 4

1. If someone has an interest in a business where they maintain no voting rights, no ability to make management decisions and no ability to sell or liquidate the business, then they would most likely be eligible for what?

A) Lack of marketability discount
General partner rebating
Minority interest discount
D) Key person estate reduction

In the setup of a typical family limited partnership (FLP):

A) The children/grandchildren receive limited partnership interests.
Assets with minimal appreciation are placed in the FLP.
The general partnership interests go to the children and the limited partnership interests are sold to the new owners.
General partners are given a minority interest discount.

3. Mr. Stewart operates a closely-held Florida motocross racing school. He is the founder and 80% owner of the racing school with his brother Malcolm. He works full-time for the business and is responsible solely for training during the first two weeks of handling, turning and jump training. If Mr. Stewart was to die, which of the following valuation discounts might his estate executor be able to claim?

I. Lack of marketability discount
II. Blockage discount
III. Key person discount
IV. Minority discount

A) I and II only
I and III only
II and III only
I, II, III and IV


Mr. Jones suffers a heart attack in 2011 and dies. In his will he leaves the following assets to his son Jeff:

House in Richmond, Virginia
$200,000 FMV

1,000 shares of ABC stock
$20 per share at purchase
$30 per share at date of death

Virginia Bank CD
$100,000 FMV

Life Insurance Policy
$100,000 payable to Jeff

Which of the following are CORRECT?

I. Jeff's basis in the ABC stock will be $30,000.
II. These assets will add $330,000 to the gross estate of Mr. Jones.
III. Jeff will have to pay federal income tax on the $100,000 life insurance proceeds.
IV. Jeff will have a taxable gain of $10,000 in the ABC stock.

A) I only
II only
I, III and IV only
II and III only
I, II, III and IV

Answer: A

Jeff will receive a step-up in basis to $30,000 on the ABC stock, and he will not owe any taxes on the inheritance of the stock. These assets will add $430,000 to the gross estate of Mr. Jones and Jeff will not owe any federal income tax on the life insurance proceeds.

Answer Key
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