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for the 1988 stock transfer in the amount of $385. Willis’
computation is as follows:
Capital $310,000
Special surplus 1,000
Unassigned surplus 5,579,972
Mandatory securities
valuation reserve 636,475
Subtotal $6,527,447
Plus:
1.5 x annual premium income 2,659,323
Subtotal 9,186,770
Less:
35% discount 3,215,370
Total discounted value 5,971,400
Total discounted value 5,971,400
Divided by:
Shares outstanding 15,500
Discounted per-share value $385
In October 1990, petitioners’ tax counsel complied with an
earlier request and provided an agent for respondent with a
written explanation of Willis’ computation of the discounted per-
share value for the 1988 stock transfer. The principal focus of
this correspondence concerned the 35-percent minority interest
discount factor and the addition of 1-1/2 years’ annual premium
income.
In 1992, in reaction to respondent’s having initiated an
examination of petitioners’ 1988 gift tax returns, petitioners’
tax counsel hired David B.H. Chaffe III (Chaffe), of Chaffe &
Associates, Inc., to conduct a second appraisal of RLIC and the
1988 stock transfer. Chaffe’s appraisal report was provided to
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