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Petitioner's testimony on this issue was not credible and was
contradicted by other employees of the Club. The above cash
withdrawals from the Club in the amounts of $6,721 and $4,699 are to
be treated as taxable income to petitioner.
Valuation of 2618 Inc's Stock as of September 20, 1988
Fair market value is defined as the price at which property
would change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or sell and both having
reasonable knowledge of relevant facts. United States v. Cartwright,
411 U.S. 546, 551 (1973). The valuation of property involves a
question of fact. Commissioner v. Scottish Am. Inv. Co., 323 U.S.
119, 123-125 (1944); Hamm v. Commissioner, 325 F.2d 934, 938 (8th
Cir. 1963), affg. T.C. Memo. 1961-347.
In the absence of arm's-length sales near the valuation date,
closely held stock generally is to be valued on the basis of such
factors as the corporation's net worth, prospective earning power,
and dividend-paying capacity. Estate of Andrews v. Commissioner, 79
T.C. 938, 940 (1982).
Petitioner does not appear to dispute the treatment of his
receipt of the stock of 2618 Inc as taxable income. As indicated,
petitioner’s purported purchase of the stock was a sham. Petitioner
received the outstanding stock of 2618 Inc in payment of legal fees
owed to him in excess of $500,000, and the value of the stock
petitioner received constitutes taxable income to petitioner.
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