Discount Studies
Discount studies are often the difference between a generic conclusion and a defensible one. When the interest being valued is a minority, non-controlling, or otherwise restricted ownership position, applying unsupported rule-of-thumb discounts invites challenge. Arch Canyon’s professionals analyze the rights and restrictions that affect control and marketability — and document the facts and methodology behind lack of control (DLOC) and lack of marketability (DLOM) conclusions.
Our professionals have completed more than 1,000 discount and fractional interest appraisals. That volume shows up in the workpapers: we know where examinations and opposing experts focus, and we build analyses accordingly.
What a discount study is
A discount study evaluates how the characteristics of a specific ownership interest — relative to a controlling or freely marketable interest — affect value. Commonly, that means quantifying:
- Lack of control (DLOC): limitations on the owner’s ability to direct management, compel distributions, force a sale, or otherwise exercise controlling rights
- Lack of marketability (DLOM): limitations on the ability to convert the interest to cash quickly and at a known price, given transfer restrictions, buyer pools, information asymmetry, and related factors
Discounts are not interchangeable across entities. Operating agreements, partnership agreements, shareholder agreements, voting rights, preferred preferences, put/call provisions, and the composition of the asset base all matter.
When discount studies are needed
Discount analyses frequently arise in:
- Gift and estate tax valuations of FLP, FLLC, and holding company interests
- Fractional interests in real estate and real estate entities
- Tenants-in-common and other undivided interests
- Restricted stock and blockage analyses
- Carried interests and complex preference structures where discount analysis applies
- Dispute settings where the value of a non-controlling or illiquid interest is contested
Counsel and CPAs typically engage a discount study when the interest transferred or disputed is not a 100% controlling, freely marketable interest — or when entity-level and interest-level adjustments must be clearly separated and supported.
What we do
We develop fact-specific discount analyses tied to the governing documents and economics of the interest. Depending on the engagement, that may include quantitative market evidence, qualitative factor analysis, and reconciliation of approaches — always with documentation suitable for tax, transaction, or dispute audiences.
Our discount study experience includes:
- Lack of Control (DLOC) and Lack of Marketability (DLOM) studies
- Fractional interests in real estate and real estate entities
- FLP, FLLC, and holding company discounts
- Restricted stock and blockage discounts
- Tenants-in-common and other undivided interests
- Carried interests and complex preference structures where discount analysis applies
Process / what to expect
1. Define the interest. We confirm the exact ownership rights being valued — percentage, voting vs. economic rights, preferred features, and any put, call, or transfer restrictions.
2. Review governing documents and asset base. Control and liquidity conclusions start with what the agreements allow and what the entity holds.
3. Select supportable methodologies. We apply approaches appropriate to the interest and the available market evidence, and we explain why.
4. Document and reconcile. We present the reasoning in clear narrative and schedules so reviewers can follow the path from facts to conclusion.
5. Integrate with the broader valuation. Discount studies often sit inside a larger appraisal (enterprise value, NAV, or real property interest). We ensure the pieces fit.
Why Arch Canyon
With more than 1,000 discount and fractional interest appraisals completed, discount methodology is a core practice area — not an afterthought. We pair that experience with the firm’s broader valuation and litigation support credentials, so the analysis is ready for IRS scrutiny, negotiation, or courtroom examination when required.
Our highly credentialed experts provide well reasoned, supportable, and defensible opinions.
Contact: 818.449.6300 | info@archcanyon.com | Agoura Hills, CA
