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required. Concluding that Johnco could not provide such a
return, Mr. Lax assumed that a willing buyer would liquidate
Johnco over 1 year for the following amounts:
Amount realized 1$6,000,000
Less 34% tax on built-in capital gains 2(1,870,000)
Net liquidation value 4,130,000
1 Mr. Lax's report provides no basis or explanation for this
figure. Insofar as the report details Johnco's assets, it
does not provide a value for the Timber Property and omits
the Harris County Real Estate.
2 This equation apparently ignores Johnco's basis in its
assets of $1,060,590, which if taken into account, would
lower estimated capital gains taxes, resulting in a higher
valuation.
Based upon the foregoing, Mr. Lax determined the fair market
value of decedent's 97-percent share of the outstanding Johnco
stock to be $4 million.16
b. G. Clyde Buck
Under the assumption that prospective buyers would seek to
maximize their economic return, Mr. Buck first identified three
possible strategies for realizing income from Johnco's assets:
(A) Sell all of the timber, then sell the residual land, over a
period of 24 months; (B) sell the timberland intact; or (C)
operate the timberland as a going concern, cutting on a
sustainable yield basis. Using present value concepts, Mr. Buck
valued each of the three possible strategies on an after-tax
16 97 percent of $4,130,000 = $4,006,100.
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