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reflect both the delay in payment and the risk of nonpayment, and
third, summing the results.
Mr. McCoy testified that, in 1992, various professional
associations published standards governing the conduct of
professional business appraisers and that professional appraisers
were ethically bound to follow those standards. Specifically,
Mr. McCoy specified an appraisal foundation publication entitled
the Uniform Standards of Professional Appraisal Practice (USPAP),
which required business appraisers to be aware of, to understand,
and correctly to employ recognized methods and techniques
necessary to produce a credible result (the standards rule).
Mr. McCoy further testified that, in order to comply with the
standards rule, it was necessary for professional appraisers to
"tax affect" the earnings of an S corporation in order to produce
a credible business appraisal. To accomplish such tax affecting,
Mr. McCoy introduced a fictitious tax burden, equal to an assumed
corporate tax rate of 40 percent, which he applied to reduce each
future period’s earnings, before such earnings were discounted to
their present value.2
2 Sec. 11 imposes a tax on the income of every corporation.
Additionally, the shareholders of a C corporation, defined in
sec. 1361(a)(2) as any corporation which is not an S corporation,
must include in gross income any dividends received from the
C corporation, sec. 301(c)(1), thus giving rise to the claim that
the income of a C corporation is subject to a double tax.
Conversely, an S corporation (as defined in sec. 1361(a)(1)),
(continued...)
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