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Petitioner timely made an estate tax return on Form 706,
United States Estate (and Generation-Skipping Transfer) Tax
Return (the Estate tax return). Petitioner did not elect
alternate valuation. In the estate tax return, petitioner valued
the shares at $1.05 per share.
Respondent determined a deficiency in estate tax by a letter
dated July 21, 1993. In a statement attached to that letter,
respondent explained her determination by stating that she had
increased the value of the shares to $4.94 per share.
Organization of the Corporation
The corporation is a California corporation, organized in
1985. Decedent was one of the founders of the corporation. The
corporation’s Standard Industrial Code is 3674, Semiconductors
and Related Devices. The corporation is a leader in the field of
programmable logic devices. The annual accounting period of the
corporation is a fiscal year ending on March 31. (Hereafter,
when referring to financial data of the corporation for a
particular year, we will be referring to financial data for the
fiscal year ending on March 31 of that year.)
2(...continued)
amount represents the exercise price of those option shares. For
purposes of this opinion, we will adopt the convention of the
parties and, without distinction, generally refer to both the
shares already acquired by decedent and to the option shares as
the “shares” of the corporation.
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