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We shall assign weight to the consideration of the built-in
capital gain tax inherent in VIC's assets. We may allow the
application of a built-in capital gains tax discount if we
believe that a hypothetical buyer would have taken into account
the tax consequences of the built-in capital gains when arriving
at the amount he would be willing to pay for Mr. Borgatello's VIC
stock. See Estate of Davis v. Commissioner, 110 T.C. at 550-554;
Estate of Jameson v. Commissioner, T.C. Memo. 1999-43. Both
parties agree in the instant case that a willing buyer would
consider those tax consequences, but they disagree on how much to
discount the net asset value to account for this factor.
The largest portion of Mr. Wilde's net asset value discount
is attributable to the built-in gains inherent in VIC's assets.
In calculating the discount attributable to the tax on the built-
in gains, Mr. Wilde utilizes a 10-year holding period for the
assets. Assuming a 2-percent growth rate, Mr. Wilde estimates
the value of VIC's assets to be $22,214,089 for the year 2004.
On the basis of such estimated value, Mr. Wilde calculates the
built-in gain and applies California's 9.3 percent capital gains
rate and a 34-percent Federal income tax rate to arrive at a
future tax in 2004 in the amount of $7,500,008. Applying a
discount rate of 8.3 percent (Long Term AFR + 2 percent for added
risk), Mr. Wilde determines the present value of the future tax
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