Phillip M. Welch and Dorothy Ellen Welch - Page 20

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             cause a client to leave petitioner for another accountant.                
             The factors used by Dr. Alexander are:  Death, relocation,                
             retirement, and client turnover.  Dr. Alexander concluded                 
             that the average death rate was 5.3 percent, the average                  
             relocation or migration rate was 5.4 percent, the average                 
             retirement rate was 7.5 percent, and the average turnover                 
             rate was 5.0 percent.  He concluded that the sum of these                 
             percentages, 23.2 percent, would be the rate at which                     
             petitioner could expect to lose clients from the list,                    
             resulting in a useful life of 4 to 5 years.  We review                    
             Dr. Alexander's computation of each of these factors below.               
                  Death Rate:  Dr. Alexander grouped 164 of the 206                    
             listed clients into groups in accordance with their life                  
             expectancy.  He determined the life expectancy of the                     
             clients using the actuarial tables in IRS Publication 575.                
             He used only actuarial rates for males.  He grouped the                   
             clients into 5-year "cohorts"; i.e., clients with a life                  
             expectancy of 0 to 5 years, 5 to 10 years, 10 to 15 years,                
             15 to 20 years, etc.                                                      
                  Dr. Alexander divided the number of individuals in                   
             each cohort by the life expectancy of that cohort to arrive               
             at an expected annual number of deaths for that cohort.                   
             He then added the annual deaths for each cohort to arrive                 
             at an expected annual number of deaths among the listed                   
             clients of 8.512 deaths per year.  Based thereon,                         




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