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$971.62. Petitioners paid the amount of tax reported on their
returns.
In calculating the fair market value of the stock making up
each gift, petitioners relied upon an appraisal prepared by Jerry
Willis (Willis). Willis, a former chief examiner for the
Louisiana Department of Insurance and owner of a private
consulting practice located in Baton Rouge, Louisiana, was hired
by petitioners’ son, David Rabenhorst, for the purpose of
conducting the appraisal. At the time he hired Willis, David
Rabenhorst was RLIC’s secretary and treasurer. A copy of Willis’
appraisal was attached to Mr. Rabenhorst’s Federal gift tax
return for 1988.
The appraisal report which Willis prepared for the 1988
stock transfer is dated June 10, 1988. Hence, the Willis
appraisal preceded the date of the actual gifts by approximately
6 months. In preparing this appraisal, Willis examined RLIC’s
five most recent annual financial statements and considered
RLIC’s assets, premium growth, and the growth of reserves and
surplus. In reaching his appraisal value, Willis also considered
sales of other private insurance companies. After a consultation
with David Rabenhorst, Willis elected to factor into his
appraisal a discount rate of 35 percent in order to account for
the stock’s minority interest. Using RLIC’s financial data as of
December 31, 1987, Willis determined a discounted per-share value
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