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should not consider factors that have already been taken into
account in the valuation of VIC's assets. We agree with the
estate.
As pertains to cash-flow and dividend paying capacity,
Section 5 of Rev. Rul. 59-60, 1959-1 C.B. 243, provides in
pertinent part:
(b) The value of the stock of a closely held investment
or real estate holding company, whether or not family
owned, is closely related to the value of the assets
underlying the stock. For companies of this type, the
appraiser should determine the fair market values of
the assets of the company. Operating expenses of such
a company and the cost of liquidating it, if any, merit
consideration when appraising the relative values of
the stock and the underlying assets. The market values
of the underlying assets give due weight to potential
earnings and dividends of the particular items of
property underlying the stock, capitalized at rates
deemed proper by the investing public at the date of
appraisal. A current appraisal by the investing public
should be superior to the retrospective opinion of an
individual. For these reasons, adjusted net worth
should be accorded greater weight in valuing the stock
of a closely held investment or real estate holding
company, whether of not family owned, than any of the
customary yardsticks of appraisal, such as earnings and
dividend paying capacity. [Emphasis added.]
The revenue ruling implies that potential earnings are already
accounted for in the market value of MVN and MVS and should not
be considered again in valuing the VIC stock. As pertains to
economic conditions and the softness in the real estate market,
in Estate of Berg v. Commissioner, T.C. Memo. 1991-279, affd. in
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