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Petitioner challenged this valuation with an appraisal of
Schlegel UK prepared by Ernst & Young LLP (E&Y). In preparing
its valuation report, E&Y used the management-prepared sales
projections for Schlegel UK, concluding that the value of
Schlegel UK was $15 million on a “stand-alone” basis. Rachwal,
however, rejected the E&Y "stand-alone" valuation theory in favor
of a "highest and best use" valuation. Rachwal did, however,
revise his final valuation of Schlegel UK from $49,069,000 to
$48,838,000 after adjusting for corporate overhead expenses and
revising the applicable exchange rate. The notice of deficiency
calculated gain based on the values determined by Rachwal of
$48,838,000 for Schlegel UK and $13,246,000 for Schlegel GmbH.
ULTIMATE FINDINGS OF FACT
On June 30, 1989, the fair market value of Schlegel UK was
$31 million.
On November 30, 1989, the fair market value of Schlegel GmbH
was $3.777 million, exclusive of the silent partnership interest.
OPINION
Section 311(b) provides that, in the case of distributions
of appreciated property to a shareholder, a corporation
recognizes gain to the extent that the fair market value of the
distributed property exceeds its adjusted basis in the hands of
the distributing corporation. See Martin Ice Cream Co. v.
Commissioner, 110 T.C. 189, 219-220 (1998). In the alternative,
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