Baine P. and Mildred C. Kerr - Page 15




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          Additional Transfers to the Kerr Children                                   
               On December 31, 1994, petitioners each transferred a .085-             
          percent class B limited partnership interest in KILP to each of the         
          Kerr children.  On December 31, 1995, petitioners each transferred          
          a .09375-percent class B limited partnership interest in KILP to            
          each of the Kerr children.                                                  
          Petitioners' Federal Gift Tax Returns                                       
               Petitioners filed Federal gifts tax returns for 1994 in which          
          they reported gift tax liabilities attributable to the transfers            
          that they made to the GRAT’s trustees and to their children.  In an         
          appraisal report (attached to the returns) prepared by Howard               
          Frazier Barker Elliott, Inc., petitioners determined the fair               
          market value of the KFLP class B limited partnership interests that         
          they transferred to the GRAT’s trustees by applying a 25-percent            
          discount for lack of liquidity or marketability to the value of the         
          KILP interests held by KFLP, and a 17.5-percent minority-interest           
          discount and a 35-percent discount for lack of liquidity or                 
          marketability on the net asset value of KFLP's assets.  Petitioners         
          computed the fair market value of a 44.535-percent limited                  
          partnership interest in KFLP as follows:                                    
          Total net asset value (KFLP)                   $3,196,366                   
          Less class A capital account                     10,000                     
          3,186,366                                                                   
          Limited partnership percentage     44.535%                                  
          NAV of the interest                           1,419,048                     
          Minority-interest discount           17.5%      248,333                     
          Marketable minority interest value            1,170,715                     
          Discount for lack of marketability   35.0%      409,750                     
                                                                                     
          Fair market value                            760,965                        




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