                           PUBLISHED

UNITED STATES COURT OF APPEALS
                FOR THE FOURTH CIRCUIT


ESTATE OF FRED O. GODLEY,               
DECEASED; FRED D. GODLEY,
Administrator CTA,
              Petitioners-Appellants,
                                                 No. 01-1887
                 v.
COMMISSIONER OF INTERNAL REVENUE,
              Respondent-Appellee.
                                        
             Appeal from the United States Tax Court.
                      (Tax Ct. No. 94-19880)

                      Argued: February 28, 2002

                       Decided: April 15, 2002

     Before WILKINSON, Chief Judge, and NIEMEYER and
                 MICHAEL, Circuit Judges.



Affirmed by published opinion. Chief Judge Wilkinson wrote the
opinion, in which Judge Niemeyer and Judge Michael joined.


                             COUNSEL

ARGUED: Carl Wells Hall, III, MAYER, BROWN & PLATT,
Charlotte, North Carolina, for Appellants. Joel L. McElvain, Tax
Division, UNITED STATES DEPARTMENT OF JUSTICE, Wash-
ington, D.C., for Appellee. ON BRIEF: Amy R. Murphy, MAYER,
BROWN & PLATT, Charlotte, North Carolina, for Appellants. Eileen
J. O’Connor, Assistant Attorney General, Richard Farber, Tax Divi-
2                     ESTATE OF GODLEY v. CIR
sion, UNITED STATES DEPARTMENT OF JUSTICE, Washington,
D.C., for Appellee.


                             OPINION

WILKINSON, Chief Judge:

   The Estate of Fred O. Godley ("Estate") appeals the decision of the
Tax Court valuing Godley’s fifty percent interest in five general part-
nerships and determining an estate tax deficiency of $247,714. The
Estate contends that the Tax Court should have applied a minority
discount by discounting Godley’s interest in the partnerships because
he lacked control over them.

   Whether a minority discount is appropriate in a given situation is
part of the larger factual question of valuation. Inasmuch as the Tax
Court’s valuation of Godley’s interest was not clearly erroneous, we
affirm.

                                  I.

   At the time of his death, decedent Fred O. Godley ("Godley")
owned a fifty percent interest in five general partnerships. The
remaining fifty percent was owned by Godley’s son Frank D. Godley
("Godley, Jr."). Four of the partnerships, Monroe Housing for the
Elderly, Clinton Housing for the Elderly, Rocky Mount Housing for
the Elderly, and Charlotte Housing for the Elderly (collectively
"Housing Partnerships"), were formed in 1978 and owned and oper-
ated housing projects for elderly tenants. The fifth general partner-
ship, Godley Management Association ("GMA"), was formed in 1980
for the purpose of managing the operations of the Housing Partner-
ships. GMA held no real estate or other fixed assets and served only
as a management company.

   The Housing Partnerships held multifamily rental housing projects
operated under Housing Assistance Payments contracts ("HAP con-
tracts") with the United States Department of Housing and Urban
Development. See United States Housing Act of 1937, 42 U.S.C.
                         ESTATE OF GODLEY v. CIR                          3
§§ 1437-1437x; Department of Housing and Urban Development Act,
42 U.S.C. §§ 3531-3547. Pursuant to the HAP contracts, Housing
Assistance payments are made to the Housing Partnerships to cover
the difference between the rental rates agreed to under the HAP con-
tracts and the portion of the rent paid by eligible families. In addition,
in the event of a vacancy, the HAP contracts entitled the owner to
payments in the amount of eighty percent of the contract rent for up
to sixty days. If the vacancy period exceeded sixty days, the owner
could request additional payments. The term of the HAP contracts for
Monroe, Charlotte, and Rocky Mount was thirty years and the term
for Clinton was twenty years.

   Godley, Jr. was the managing partner for the Housing Partnerships.
This gave him control over the overall management of the partnerships.1
Godley, Jr. likewise took care of the day-to-day management of the
Housing Partnerships. He would pay bills, set aside reserves for
replacement of assets or to cover contingencies, and acquire those
properties that the partnership had decided upon. However, Godley,
Jr. could not make any "major decision" without the affirmative vote
of seventy-five percent of the partnership shares. "Major decisions"
included buying or selling land or partnership property, securing
financing, spending in excess of $2,500, entering into major contracts,
or taking any other action "which materially affects the Partnership or
the assets or operation thereof."

   Despite the fact that Godley, Jr. was the managing partner, Godley
was actively involved in the Housing Partnerships. He regularly vis-
ited the housing projects to inspect the property and attend to the ten-
ants’ concerns. And he made his own decisions when issues with the
  1
   The applicable provision of the partnership agreement is as follows:
      § 2.02 Management of Partnership. The overall management and
      control of the business and affairs of the Partnership shall be
      vested in the managing Partner (the "Managing Partner") desig-
      nated herein, provided, however, no act shall be taken or sum
      expended or obligation incurred by the Partnership, or any Part-
      ner, with respect to a matter within the scope of any major deci-
      sion ("major decision") affecting the Partnership, unless such
      major decision had been approved by Partners holding collec-
      tively a 75% interest in the Partnership.
4                      ESTATE OF GODLEY v. CIR
tenants arose. Godley had a long history as a business man in con-
struction and when he was engaged in a business enterprise, he was
almost always the person in charge.

   At the time of Godley’s death, each partnership agreement con-
tained a provision granting Godley, Jr. the option to purchase God-
ley’s interest in that partnership for $10,000. Godley, Jr. exercised
these options and purchased Godley’s interest in all the partnerships
for a total of $50,000. On Godley’s federal estate tax return, his inter-
ests in the five partnerships were reported at a fair market value of
$10,000 each, the option price.

  On August 2, 1994, the Internal Revenue Service mailed a statutory
notice of deficiency in federal estate tax of $694,554 to the Estate.
The IRS disregarded the option price and instead determined the
value of Godley’s fifty percent interest by looking at the value of the
partnerships’ assets and the income generated by them. The IRS
applied a discount to the value it determined based on the inability to
easily sell a fifty percent interest in a closely-held company ("lack of
marketability discount"), but it did not apply a discount because
Godly lacked control over the partnerships ("minority discount").

   The Estate petitioned the Tax Court for a redetermination of the
deficiency based upon the value set forth in the options. In the alter-
native, the Estate requested a valuation based upon the fair market
value of Godley’s fifty percent interests with discounts. Specifically,
the Estate argued that the IRS should have applied a minority dis-
count when determining the fair market value of Godley’s interests.
During the trial, the Estate presented expert testimony on the valua-
tion of the partnership interests. The IRS did not present expert testi-
mony as to the value of the Housing Partnerships, but did introduce
the report of Mitchell Kaye, a valuation expert who had testified in
an earlier state proceeding involving Godley, Jr., as to the value of
GMA.2
    2
   Godley, Jr. was the defendant in an equitable distribution suit brought
by his former spouse. The value of Godley Jr.’s fifty percent interest in
the general partnerships was at issue during this suit. Kaye was an expert
witness for the plaintiff.
                       ESTATE OF GODLEY v. CIR                        5
   The Tax Court determined, after three days of trial, that the options
served a testamentary purpose, and therefore, disregarded them in
valuing Godley’s interests. The court then determined the value of the
Housing Partnerships by modifying the valuation methodology of one
of the experts and applying a twenty percent lack of marketability dis-
count. The Tax Court accepted Kaye’s report on the valuation of one
hundred percent of GMA. No minority discount for lack of control
was applied to any of the five partnerships. The court finally deter-
mined that there was an estate tax deficiency of $247,714. The Estate
appeals.

                                  II.

   The Estate contends that whether Godley’s fifty percent interest
represented a lack of control over the five partnerships, thereby enti-
tling Godley to a minority discount, is a question of law. We disagree.
The question of whether a taxpayer is entitled to a discount is inter-
twined in the larger question of valuation and valuation determina-
tions are clearly questions of fact.

                                  A.

   We review de novo the Tax Court’s conclusions on questions of
law. Waterman v. Comm’r, 179 F.3d 123, 126 (4th Cir. 1999). How-
ever, the Tax Court’s findings of fact may be set aside only if they
are clearly erroneous. Burbage v. Comm’r, 774 F.2d 644, 646 (4th
Cir. 1985). Determinations of fair market value constitute findings of
fact and, therefore, are subject to review only for clear error. Id.

   The fair market value of a business interest can often be deter-
mined simply by examining its market price. However, a closely-held
company frequently has no ready market for its shares. Therefore,
"[t]he fair market value is the price at which the property would
change hands between a willing buyer and a willing seller, neither
being under any compulsion to buy or to sell and both having reason-
able knowledge of relevant facts." United States v. Cartwright, 411
U.S. 546, 551 (1973) (quoting Treas. Reg. § 20.2031-1(b)). When
determining the fair market value under this test, a fact finder must
look to "the existing facts, circumstances, and factors at the valuation
date that influence a hypothetical willing buyer and willing seller in
6                      ESTATE OF GODLEY v. CIR
determining a selling price." Estate of Newhouse v. Comm’r, 94 T.C.
193, 231 (1990). The weight to be given to these various factors
depends upon the facts of each case. Estate of Andrews v. Comm’r,
79 T.C. 938, 940-41 (1982). And the amount a willing buyer will pay
is often not based solely on asset values or net worth. Often, a dis-
count or premium must be applied to reflect the value an investor
places on things such as managerial control, ability to re-sell the
shares, and other risks.

                                   B.

   During valuation a fact finder must decide whether the value
should be increased or discounted for any reason. A minority discount
may be appropriate if the block of stock does not enjoy the rights
associated with control of the enterprise. Estate of Chenoweth v.
Comm’r, 88 T.C. 1577, 1582 (1987). The application of such a dis-
count is only appropriate if, as a factual matter, the minority status of
the interest would affect the value that a willing buyer would pay.
Thus, the question of whether a discount for a lack of control is war-
ranted depends, like the question of valuation generally, on the facts
and circumstances of the case.

   Control has been defined as an interest which allows the share-
holder to "unilaterally direct corporate action, select management,
decide the amount of distribution, rearrange the corporation’s capital
structure, and decide whether to liquidate, merge, or sell assets."
Estate of Newhouse, 94 T.C. at 251-52. These various powers support
applying a control premium to a controlling block of shares in order
to reflect the inherent value of that controlling interest. On the other
hand, a minority discount is applied to reflect the lack of power and
risks a minority interest poses. And like a corporate minority share-
holder, "a limited partner generally has no voice in the management
of the partnership and cannot control investment policies or partner-
ship distribution," so a minority discount may apply to the value of
that interest as well. Estate of Bischoff v. Comm’r, 69 T.C. 32, 49
(1977).

  A premium for control or discount for lack of control may be
appropriate as a factual matter for several reasons. First, an investor
who believes a business may be improved by better management or
                       ESTATE OF GODLEY v. CIR                        7
other changes may be willing to pay more for a controlling interest.
"Investors often pay a premium when they believe that they have
unearthed an undervalued corporation." Bittker & Lokken, Federal
Taxation of Income, Estates and Gifts § 135.3.4 (2d ed. 1993). An
investor purchasing a minority interest, however, may recognize that
he will be unable to make any changes and will, therefore, want to
pay less than fair market value. Second, control over a business may
decrease the risk a particular investment poses to the investor,
increasing the value of that interest. And an investor will also recog-
nize that the increased risks a minority shareholder faces may
decrease the value of an interest. Third, with control over the busi-
ness, an investor may be able to pay himself an excessive salary or
to otherwise self-deal. Bittker & Lokken, supra, § 135.3.4. While
courts would be unlikely to recognize any such prospect as the basis
for a control premium, the minority shareholder may risk falling vic-
tim to such self-dealing. Thus, the rights conveyed by corporate con-
trol, "the ability to determine management, distributions, and
corporate structure," enhance the value of the corporation and com-
mand a premium. William S. Blatt, Minority Discounts, Fair Market
Value, and the Culture of Estate Taxation, 52 Tax L. Rev. 225, 231
(1997). "Conversely, in recognition of the potential exploitation of
minority shareholders, stock lacking control generally receives a
minority discount." Id. (footnote omitted). Any of these rationales
may support a factual finding that control warrants a premium, or that
the lack thereof warrants a discount. Absent some explanation of why
control has economic value, however, no premium or discount is war-
ranted.

   It is true that in a closely-held corporation, a minority interest in
stock is ordinarily discounted to reflect lack of control. See
Theophilos v. Comm’r, 85 F.3d 440, 449 (9th Cir. 1996); Estate of
Bright v. United States, 658 F.2d 999, 1002-03 (Former 5th Cir. 1981)
(en banc). However, the mere presumption that a discount may exist
does not lead to the conclusion that a discount must be applied as a
matter of law whenever a shareholder owns less than fifty-one percent
of a corporation. Our view that the question of whether to apply a
minority discount is factual in nature is one that is widely shared. See
Estate of Ford v. Comm’r, 53 F.3d 924, 926 (8th Cir. 1995) ("The
issues of valuation and applicability of marketability and minority
interest discounts are factual questions which we review under the
8                      ESTATE OF GODLEY v. CIR
clearly erroneous standard."); Ahmanson Foundation v. United States,
674 F.2d 761, 770 (9th Cir. 1981) ("[I]t was not clear error for the dis-
trict judge to find that there would be no control premium paid for the
. . . shares."); Estate of Chenowith, 88 T.C. at 1589 (1987) ("The
amount of such control premium presents a material issue of fact.").
We thus turn to the facts of the case at hand.

                                  III.

   In this case, the Tax Court determined that the value of the partner-
ship interests was subject to a discount for lack of marketability, but
not for the alleged lack of control. This finding was not clearly erro-
neous. As the evidence demonstrates, there was little to be gained by
having control of these partnerships and little risk in holding a minor-
ity interest.

   Here, the Housing Partnerships were guaranteed a long-term,
steady income stream under the HUD contracts. The Housing Partner-
ships had little risk of losing the HUD contracts and the management
of the properties did not require particular expertise. Indeed, the HUD
contracts allowed the Housing Partnerships to collect above-market
rents, and there was no other use for the partnerships that would
increase their profits. Therefore, control of the Housing Partnerships
did not carry with it any appreciable economic value. Nor did a lack
of control reduce the value of a fifty percent interest such that a
minority discount was required.

   The Estate argues that a minority discount was required because
"the record supports a finding that the managing partner had signifi-
cant latitude in determining the extent of partnership distributions and
the amounts set aside in reserve." However, each partnership agree-
ment required the partnership to distribute its "net cash flow" annually
and set forth a specific calculation of that net cash flow. There was
no risk that Godley, a fifty percent partner, would not realize an
annual payout. Although the agreements also granted the managing
partner the power to set aside reserves, that power was characterized
as one of "day-to-day management." It appears unlikely that this "set
aside" power could be used to defeat the requirement of an annual
distribution. At a minimum, Godley could exercise his power under
the partnership agreements to prevent any change to the guarantee of
                        ESTATE OF GODLEY v. CIR                            9
an annual distribution. Thus, as the Tax Court determined, Godley
was effectively guaranteed a reasonable annual distribution of part-
nership income. And while an inability to force a distribution of
income may under other circumstances warrant a discount for lack of
control, the Tax Court correctly found that this factor was not relevant
in this case.

   Similarly, the Estate contends that Godley’s fifty percent interest
made it impossible for him to compel liquidation or sell partnership
assets. However, neither Godley nor Godley, Jr. could compel liqui-
dation or make any "major decision" without the affirmative vote of
seventy-five percent of the partnership shares. Moreover, given the
passive nature of the business and the almost certain prospect of
steady profits, the ability to liquidate or sell assets was of little practi-
cal import. Thus, as the Tax Court reasoned, the guarantee of above-
market rents and other factors unique to the Housing Partnerships
meant that the power to liquidate the partnership or to sell partnership
assets would have minimal value to an investor.

   The Tax Court’s decision not to apply a minority discount to GMA,
the fifth partnership, was also not clearly erroneous. GMA was a
holding company without any assets that served as a vehicle to ensure
compliance with HUD regulations. Any profits or losses attributed to
GMA were simply those funneled through it from the Housing Part-
nerships. Thus, the presence of a low-risk, stable stream of income
that justified not applying a minority discount to the value of the
Housing Partnerships was equally present with respect to GMA.

   The Tax Court carefully considered the expert testimony, the
expert valuations of the partnerships, and the unique nature of the
rent-controlled housing business in reaching its decision not to apply
a minority discount to Godley’s fifty percent interest. That court
looked at "the existing facts, circumstances, and factors at the valua-
tion date that influence a hypothetical willing buyer and willing seller
in determining a selling price." Estate of Newhouse, 94 T.C. at 231.
We are satisfied that the Tax Court’s valuation determinations were
not clearly erroneous.3
  3
   The Estate also contends that the Tax Court improperly relied on the
valuation report and testimony of Kaye. It contends that Kaye’s report
10                      ESTATE OF GODLEY v. CIR
                                    IV.

     For the foregoing reasons, the judgement of the Tax Court is

                                                              AFFIRMED.

was accepted in the state court as a valuation of all of GMA, not of a
fifty percent interest in that business and therefore, cannot be an accurate
valuation of Godley’s interest in GMA. However, we do not think that
the Tax Court relied solely on Kaye’s report in reaching its valuation
decision in this case. As noted, the facts support the Tax Court’s valua-
tion determination, and the Estate has failed to proffer sufficient evi-
dence of inaccuracies in Kaye’s report to warrant a departure from the
deferential standard we apply to a trial court’s evaluation of expert testi-
mony. See Sammons v. Comm’r, 838 F.2d 330, 334 (9th Cir. 1988).
