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However, as of September 20, 1988, the date on which petitioner
received the stock, we regard the continuing dispute and litigation
involving the SB permit as having a significant effect on the value
of the stock of 2618 Inc that petitioner received. Without the SB
permit, the Club's continued operation as a viable business was not
likely. Litigation involving the SB permit was not resolved until
1990 when the Club finally received the SB permit.
Respondent's expert’s valuation of $1,140,000 does not take into
account the unresolved dispute over the SB permit and the possibility
the Club would be required to close on March 31, 1990. On the other
hand, respondent's expert’s alternative valuation of $230,000 does
not adequately reflect the possibility that the SB permit dispute
would be resolved favorably and that the Club would be able to
operate indefinitely.
Respondent's expert acknowledges that in his opinion, risks
associated with the SB permit litigation might well place the value
of the stock of 2618 Inc between his $230,000 and $1,140,000
alternate valuation figures.
We conclude that respondent's expert’s $1,140,000 valuation for
the stock of 2618 Inc should be reduced by a discount of 50 percent
to reflect risks associated with the litigation over the SB permit.
We conclude that the proper value of the stock of 2618 Inc that
petitioner received on September 20, 1988, was $570,000. This amount
is further supported or corroborated by the approximate $500,000 in
legal fees that were owed to petitioner and for which the stock was
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