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an ongoing business, Mr. Bergwerk assigned relative weights to the
three valuation factors that he found persuasive--50 percent to
capitalized earnings, 30 percent to petitioner’s dividend-paying
capacity, and 20 percent to petitioner’s book value--and then averaged
the factors in accordance with those relative weights. In so doing,
he appropriately gave primary consideration to petitioner’s earnings
history, as recommended by Rev. Rul. 59-60, sec. 5, 1959-1 C.B. at
242, and estimated petitioner’s fair market value as an ongoing
business prior to the separation of the business lines to be $276,509,
and Arnold’s 51-percent share, which was redeemed upon distribution of
SIC stock, to be $141,000.
Mr. Bergwerk used the same three factors and approach used in
Bader v. United States, 172 F. Supp. 833 (S.D. Ill. 1959), a case
decided prior to the issuance of Rev. Rul. 59-60, supra, which also
averaged the results of the factors. Mr. Bergwerk did not discount
his valuation on account of lack of marketability, as did the court in
Bader, nor did he provide an explanation of why he used the particular
weights he used, or of why he had disregarded the admonishment of Rev.
Rul. 59-60, 1959-1 C.B. at 243, that “no useful purpose is served by
taking an average of several factors * * * and basing the valuation on
the result.”
Despite the problems we have with Mr. Bergwerk’s report, we find
that Mr. Bergwerk’s estimate of the fair market value of petitioner
just prior to the transactions in issue provides a reasonable upper
limit on the value of petitioner as of June 1988; we adopt Mr.
Bergwerk’s figure, in the absence of countervailing expert opinion and
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