Walter L. Gross, Jr., and Barbara H. Gross - Page 27




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                    The Court:  Um-hmm.                                                
                    Mr. Wilhoite:  But every dollar of earnings for                    
               G&J, in any particular year, has to go to the IRS.                      
               Whether it goes through the shareholders or directly,                   
               it has to go to the IRS.                                                
                    So, what’s left above the tax that they’re paying                  
               to the IRS is the true distribution to the shareholder,                 
               and also represents the true available cash that the                    
               company can distribute.                                                 
               It is possible that Mr. Wilhoite is arguing that, in valuing            
          an S corporation, the avoided C corporation tax must be taken                
          into account as a hypothetical expense, in addition to the                   
          shareholder level taxes actually imposed on the S corporation’s              
          shareholders.  Indeed, that is the position taken by Mr. McCoy.              
          Mr. Wilhoite has failed to convince us, however, that Dr. Bajaj              
          should have applied a hypothetical corporate tax rate in excess              
          of the zero-percent actual corporate tax rate he did apply.  He              
          has not convinced us that such an adjustment is appropriate as a             
          matter of economic theory or that an adjustment equal to a                   
          hypothetical corporate tax is an appropriate substitute for                  
          certain difficult to quantify disadvantages that he sees                     
          attaching to an S corporation election.  We believe that the                 
          principal benefit that shareholders expect from an S corporation             
          election is a reduction in the total tax burden imposed on the               
          enterprise.  The owners expect to save money, and we see no                  
          reason why that savings ought to be ignored as a matter of course            
          in valuing the S corporation.                                                





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