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II. Valuation of the Gift
In part, to support their respective valuations, the parties
have relied on the testimony of experts. We have considered that
testimony and, in part, have relied on it in reaching our own
conclusion.
A. Method of Valuation
Based on expert testimony, petitioner requests that we value
the undivided interest in one of two ways: (1) apply a discount
(50 percent) to 25 percent of the value of the timberland
($40 million) to take into account various problems relating to
the ownership of an undivided fractional interest, or (2) use an
income capitalization approach. Because of the possibility that,
by way of an action for partition, the undivided interest could,
in a reasonable amount of time, be liquidated or turned into a
fee interest in some portion of the timberland, we believe that a
capitalization approach is a reasonable way to arrive at a value
for the undivided interest. At the end of the partition period,
a hypothetical owner of the undivided interest would receive
either cash payment or a fee interest in certain acreage (a
payment in kind). During the pendency of the action, she would
(as will be shown) receive certain cash payments. We believe
that we can value all of those payments and determine an
appropriate discount rate. With such data, we can determine a
present value for the undivided interest. But cf. Harwood v.
Commissioner, 82 T.C. 239, 265 (1984) (declining to accept an
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