- 32 -
(30 percent), and (3) price/book multiple (40 percent). After
computing the weighted average value of total equity on a
minority basis, HSC applied a 30-percent marketability discount,
and divided the result by 3,000, the total number of shares of
Peoples common stock outstanding, to determine the fair market
value of the estate shares on a per share basis. Petitioner did
not use HSC as an expert witness in this case.
On July 25, 1997, respondent timely mailed petitioner a
notice of deficiency with respect to its estate tax liability.
The notice of deficiency determined a value of $8,938,91214 for
the estate shares, based upon an appraisal prepared by David F.
Fuller of Business Valuation Services, Inc., who acted as
respondent's expert witness in this case.
H. Lack of Marketability
On the valuation date: (1) Peoples had few opportunities
for growth; (2) Peoples' earnings were subject to significant
interest rate risk; (3) Peoples had no employee stock option plan
or history of repurchasing shares; and (4) there was no readily
available public or private market for Peoples stock. Each of
these conditions contributed to a lack of marketability of
Peoples stock.
14 The redetermined value of the estate shares in the notice
of deficiency and the amount asserted at trial by respondent
are essentially the same; they differ only because
respondent's expert rounded certain figures in his report.
See discussion infra of respondent's expert.
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