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respectively. In his direct testimony, Dr. Spiro reached the
conclusion that the aggregate fair market value of the shares as
of the valuation date was $30,300,000, or $48,100 a share,
rounded.2
In reaching his conclusion, Dr. Spiro utilized both a market
approach and an income approach, the latter of which is based
upon the discounted cashflow method. He then applied to the
results under both approaches a 15-percent “liquidity discount”
and a 10-percent discount for “additional risks associated with S
corporations” including “the potential loss of S corporation
status and shareholder liability for income taxes on S
corporation income, regardless of the level of distributions.”
He reconciled the two approaches by applying a 70-percent
weighting factor to the “indicated value” of each share under the
income approach ($36,150) and a 30-percent weighting factor to
such value under the market approach ($65,209), resulting in a
2 The AVG report that constitutes Dr. Spiro’s direct
testimony is dated Apr. 26, 2000. The parties have stipulated,
and we have received into evidence, an earlier report from AVG to
respondent, dated Oct. 3, 1997, in which AVG concludes that the
fair market value of the shares on the valuation date was
$30,177,000. That value agrees with the value used by respondent
in preparing the notice of deficiency here in issue, but it is
lower than the value reached in the Apr. 26, 2000, report. On
brief, respondent asks us to find that, on the valuation date,
the fair market value of the shares was $30,177,000. We conclude
that respondent is not asking for any increased deficiency, even
though the report that constitutes Dr. Spiro’s direct testimony
finds a slightly higher valuation of the shares.
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