Walter L. Gross, Jr., and Barbara H. Gross - Page 1


                                 T.C. Memo. 1999-254                                   

                               UNITED STATES TAX COURT                                 

             WALTER L. GROSS, JR., AND BARBARA H. GROSS, Petitioners v.                
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                       
            CALVIN C. LINNEMANN AND PATRICIA G. LINNEMANN, Petitioners v.              
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                       

               Docket Nos. 4460-97, 4469-97.           Filed July 29, 1999.            

                    Ps made gifts to their children of shares in                       
               S corporation, which, annually, distributed                             
               substantially all of its income.  R determined gift tax                 
               deficiencies based on adjustments increasing the fair                   
               market value of the shares.  Principal differences                      
               between the parties are (1) whether to “tax affect”                     
               corporation’s earnings in determining discounted cash-                  
               flow, (2) the discount for lack of marketability, and                   
               (3) the cost of equity.                                                 
                    Held:  Value of shares determined; marketability                   
               discount and cost of equity determined; tax affecting                   
               inappropriate under facts presented.                                    

               James J. Ryan and Gerald J. Rapien, for petitioners.                    
               Robin Herrell and Matthew Fritz, for respondent.                        

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