- 32 -
for the assets. Adjusting Mr. Wilde's figures for our lower
valuation of the shopping centers does not yield a different
percentage value.10
The range of discount values attributable to the tax on the
built-in gain in VIC's assets presented by the experts is 32.3
percent (if the assets are immediately liquidated) to 20.5
percent (if the assets are held for 10 years). Although there is
no evidence that a willing buyer of VIC would immediately
liquidate the assets, there is also not much support for
respondent's contention that a buyer would wait 10 years before
liquidating the assets. In reaching a middle ground, therefore,
we find it reasonable to discount the net asset value by 24
10 The current fair market value of the built-in gain assets is
$17,704,290 ($17,361,110 (real estate) plus (investments in stock
and art) $343,180). Such amount, assuming a 2-percent annual
growth rate for the 10-year holding period, would be worth
$21,581,354 on Jan. 12, 2004. After adjusting for annual
depreciation of $156,000 per year during the 10-year holding
period (adding $1,560,000 to the projected built in gain), the
total projected built-in gain on Jan. 12, 2004, is $18,052,828.
The California tax on that amount, at 9.3 percent is $1,678,913.
Total Federal gain is $16,373,915 and, taxed at the 34-percent
corporate Federal rate, produces $5,567,131 in Federal tax. The
total amount of Federal and California taxes on the projected
built-in gain is $7,246,044. Assuming, as Mr. Wilde did, a
discount rate of 8.3 percent (Long term AFR + 2 percent for added
risk), the present value of the future $7,246,044 in taxes is
$3,264,571. This amount, as a percentage of net asset value, is
20.5 percent ($3,264,571 divided by $15,924,290).
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