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done so in a manner sufficient to prevent petitioner from being
able to carry its burden of final persuasion, as respondent
asserts.
We may allow the application of a built-in capital gains
discount if we believe that a hypothetical buyer would have taken
into account the tax consequences of built-in capital gains when
arriving at the amount he would be willing to pay for decedent's
Johnco stock. Because Johnco's timber assets are the principal
source of the built-in capital gains and, as discussed infra, are
subject to special tax rules that make certain the recognition of
the built-in capital gains over time, we think it is clear that a
hypothetical buyer would take into account some measure of
Johnco's built-in capital gains in valuing decedent's Johnco
stock.
On the valuation date, Johnco had a valid election under
section 631(a) that could not be revoked absent a showing of
undue hardship. Section 631(a) treats the cutting of timber as
though it were a hypothetical sale or exchange of the timber.
This fictitious sale is deemed to have been consummated at the
time when the cutting occurs, and the timber must be cut for sale
or use in the taxpayer's trade or business. The sale price in
this hypothetical sale is the fair market value of the timber on
the first day of the taxable year in which it is cut. Gain or
loss under section 631(a) is measured by the difference between
the fair market value of the cut timber and its adjusted basis
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