- 39 -
stock in corporation would consider that underlying assets of
corporation included inactive investment portfolio that, upon
liquidation, would incur substantial capital gains tax
liability).
Petitioner's position is that a prospective buyer of
decedent's Johnco stock would value the stock with the intention
of liquidating Johnco. Thus, in petitioner's view, a prospective
liability for built-in capital gains is not speculative, and a
built-in capital gains discount is warranted. Petitioner's
experts have attempted to support this conclusion by comparing
the net present value of Johnco as a going concern to its net
present value if liquidated. We think it is clear that
petitioner's experts were able to reach this result only because
they incorrectly valued decedent's Johnco stock on the basis of
Johnco's income, rather than its assets. We agree with Mr. Burns
that decedent's Johnco stock is properly valued under Rev. Rul.
59-60, 1959-1 C.B. 237, by looking to the fair market value of
Johnco's assets. That method is most reasonable in a case like
this one, where the corporation functions as a holding, rather
than an operating, company and earnings are relatively low in
comparison to the fair market value of the underlying assets.
See Estate of Davis v. Commissioner, supra; Estate of Piper v.
Commissioner, supra at 1069-1070; Estate of Cruikshank v.
Commissioner, supra. Contrary to petitioner's position, we agree
with respondent that in light of the many desirable
characteristics of the Timber Property the most likely buyer of
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