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40-percent corporate income tax rate for the zero-percent
corporate rate he first assumed. Offsetting for interest payment
deductions, Dr. Bajaj calculated that the resulting market
capitalization dropped from $286 million to $188 million, a
34-percent reduction, which amount was within 10 percent of the
weighted average value ($171,993,000) computed by Mr. McCoy.
Petitioners argue for tax affecting not only on the basis of
the testimony of their expert witnesses, but also on the basis
that respondent has advocated that adjustment and must be held to
it.
B. Petitioners' Position
Petitioners introduced into evidence two internal documents
of the Internal Revenue Service: (1) a valuation guide for
income, estate, and gift taxes (the guide), and (2) an
examination technique handbook for estate tax examiners (the
handbook).
We read those excerpts as neither requiring tax affecting
nor laying the basis for a claim of detrimental reliance. The
guide, in relevant part, reads:
* * * [S] corporations are treated similarly to
partnerships for tax purposes. S Corporations lend
themselves readily to valuation approaches comparable
to those used in valuing closely held corporations.
You need only to adjust the earnings from the business
to reflect estimated corporate income taxes that would
have been payable had the Subchapter S election not
been made.
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