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1990). However, petitioner did have some intangibles in the form of
customer lists and pricing lists. Petitioner transferred those
business records pertaining to the supermarket distribution business
to SIC in the initial tax-free exchange for SIC stock. Petitioner
retained other proprietary information pertaining to the independent
grocery store business that Martin continued to conduct in the years
subsequent to the transactions at issue.
Mr. Bergwerk determined that petitioner had no dividend-paying
capacity, using the methodology that this Court used in Bardahl
Manufacturing Corp. v. Commissioner, T.C. Memo. 1965-200, to determine
reasonable business needs for retained earnings. He therefore
assigned a fair market value of zero to MIC as an ongoing business on
the basis of this lack of dividend-paying capacity. In so doing, Mr.
Bergwerk disregarded an explicit instruction in Rev. Rul. 59-60, 1959-
1 C.B. at 241, which points out that, where
an actual or effective controlling interest in a corporation
is to be valued, the dividend factor is not a material
element, since the payment of such dividends is
discretionary with the controlling stockholders. The
individual or group in control can substitute salaries and
bonuses for dividends, thus reducing net income and
understating the dividend-paying capacity of the company.
It follows, therefore, that dividends are less reliable
criteria of fair market value than other applicable factors.
Even though a valuation derived from dividend-paying capacity is an
inappropriate factor in this case, the relative lack of dividend-
paying capacity cannot be entirely ignored in that it shows the extent
to which petitioner was undercapitalized in those years--a factor that
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