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discount to reflect the corporations' built-in capital gains tax
liability.
In determining the value of decedent's shares of ESI and ISC
on the estate tax return, the estate combined the Mercer
valuation of the corporations' value with estimates of the value
of the real property owned by both corporations, and then applied
a 34-percent discount for built-in capital gains on the real
property and a 50-percent discount for decedent's minority
interest.3 The estate's computation is as follows:
ESI ISC
Mercer value $670,000 $1,809,000
Real estate value 750,000 500,000
total value 1,420,000 2,309,000
Less: discount for
capital gains on real
estate (34%) 255,000 170,000
Less: 50% discount for
minority interest 582,500 1,069,500
discounted value 582,500 1,069,500
Number of shares
outstanding 570 836
Per share value 1,020.84 1,276.02
Number of shares owned
3 As for the capital gains discount, the estate did not
deduct the adjusted basis of the properties owned by ESI or ISC.
The capital gain rate of 34 percent was applied to the estimated
real estate values of the respective properties. The parties
agree that the estate should have deducted the adjusted basis
from the estimated real estate values. Our holding makes this
computational adjustment unnecessary.
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Last modified: May 25, 2011