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Although Mr. Pratt recognized in his expert report that as of
the valuation date it would have been possible for ADDI&C to
convert to an S corporation, he did not consider conversion to S
corporation status to be likely as of that date for several
reasons. First, according to Mr. Pratt, it is improper to assume,
as respondent does, that ADDI&C would have been able to make an S
corporation election. That is because such an assumption would
have impermissibly limited the hypothetical willing buyer of each
of the two blocks of stock at issue to certain individuals and
entities who were permitted as of the valuation date to be
shareholders of an S corporation, see sec. 1361(b)(1)(B) and (C),
thereby improperly excluding as a hypothetical willing buyer of
each such block, for example, a C corporation, see sec.
1361(b)(1)(B). In addition, Mr. Pratt believes that the
assumption by respondent that none of ADDI&C’s assets would be
sold for 10 years would have reduced the marketability of each
block of ADDI&C stock at issue, and such a requirement would have
made it unlikely that ADDI&C’s stockholders would have consented
to an S corporation election. Mr. Pratt also notes that section
1362(d)(3) could be a problem for an investment company, like
ADDI&C, unless ADDI&C were to retain its cattle operations or
engage in some other operating business that generated
substantially more gross income than the passive income generated
by ADDI&C's other assets. That is because pursuant to section
1362(d)(3) an otherwise valid S corporation election will be
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