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had a fair market value of only $300,000 ($100 per share),5
resulting in gifts by each of them to Robert of $240,540, before
allowance for the $3,000 annual exclusion.6
After concessions by Maude's estate, the remaining items at
issue in the Estate Tax Notice are respondent's determinations
that for purposes of the estate tax: (i) The fair market value
on February 2, 1980, of the donative transfer of 6 shares of
FIC's common stock from Maude to Robert was $147,600, rather than
5 Respondent has not contested that the preferred shares of
FIC had a fair market value equal to their par value when
received by decedents. Valued at par, FIC's preferred shares,
with no participatory or residual rights beyond the stated
dividend and par value, would yield 10 percent if dividends were
declared and paid in a timely fashion by the directors elected by
the holder(s) of the common stock of this small, closely held
corporation. Inasmuch as the parties have stipulated that
returns on a 20-year Treasury bond (risk-free rate) in 1980 and
1981 were 11.86 percent and 14.4 percent, respectively,
respondent's acceptance of par as the value of the preferred
shares appears to be highly questionable. In addition, the
closely held character of FIC, the nonvoting characteristics of
the preferred, and the resulting inability of the preferred
holders to compel the payment of dividends or bring about
redemption of their preferred shares or liquidation of the
company would have justified substantial minority and lack-of-
marketability discounts for the preferred. Despite our
misgivings, we decline to revalue the preferred shares on our own
motion.
6 See sec. 2503(b). The Economic Recovery Tax Act of 1981,
Pub. L. 97-34, sec. 441(a), 95 Stat. 319, which does not apply in
this case, amended sec. 2503(b) by increasing the annual
exclusion to $10,000, for transfers made after Dec. 31, 1981.
Respondent determined that Royal and Maude had made gifts of
$240,540 before allowance for the $3,000 annual exclusion. Royal
was determined to have made a taxable gift of $237,540, while
Maude was determined to have made a taxable gift of $237,840.
This discrepancy appears to be the result of a computational
error by respondent.
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