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Following Brighton’s offer, the Scanlan Family, which then
consisted of Decedent’s descendants and Administratrix, exercised
their right of first refusal and caused Eatel to enter into an
agreement with each shareholder who was not a member of the
Scanlan Family (Other Shareholders) to sell his or her shares to
Eatel at the $75.1555 per-share price offered by Brighton. On
August 30, 1993, the Other Shareholders agreed with the Scanlan
Family to have their shares redeemed at $75.1555 per share. In
January 1994, Eatel redeemed all of the stock of the Other
Shareholders, which was 62.9 percent of Eatel’s outstanding stock
at that time.
Based on the redemption price, respondent determined that
each share of Eatel’s voting stock was worth $72.15 on July 16,
1991. In the case of Decedent, respondent reduced the $72.15
value by 4 percent to account for his minority interest in the
company, a minor increase in earnings between the date of his
death and the date of the redemption agreement, and the deflation
of the dollar from the date of the redemption agreement to the
date of Decedent’s death. Respondent also used this formula to
set the value of the donated stock at $72.15 per share, and she
increased Decedent's taxable gifts accordingly.
DATA’s 1984 through 1987 net income (after taxes) was
$423,225, $854,085, $894,990, $369,009, respectively, and its net
income (after taxes) for the 6-month period ended December 31,
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