The Applicability of a Market Approach Valuation Analysis That Employs Only a Single Comparable: Heck v. Commissioner
In Estate of Heck v. Commissioner, the Tax Court refused to adopt the Service’s application of the market approach as part of a closely held company’s valuation where the expert relied on only one comparable company. Instead, the court relied exclusively on the discounted cash flows (DCF) method to arrive at the company’s valuation and the resultant deficiency in a decedent-shareholder’s estate tax return. This Note concludes that the court should not have articulated a bright line rule against using only one comparable company because courts often employ the market approach as one of many valuation techniques and not as a comprehensive valuation mechanism.This Note offers a set of examples where a court should consider including the valuations derived from a single comparable analysis in its final valuation of a company. Part I of this Note summarizes the relevant tax law and the facts of Heck and Part II analyzes the Tax Court’s decision. Although Heck confronts the comprehensive valuation of a company, Part III focuses on the court’s refusal to apply the market approach to a single comparable and recommends an alternative analysis.