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Mr. Frazier fails to take into account these credits and that the
estimated annual income tax liability of the company should be
reduced by the net present value of these credits. We agree with
petitioner that a potential buyer would place no value on the
embedded tax credits and that a 34-percent tax rate on net income
is appropriate.
Because of the nature of its business, Dunn Equipment holds
a large number of depreciable assets. These assets, and the
large depreciation deductions they generated, required the
company to pay alternative minimum taxes for taxable years 1988
through 1991. See secs. 55(a) and (b)(1) and 56(a)(1). There is
no indication that decedent’s death would alter Dunn Equipment’s
business, in particular that alternative minimum tax payments
would no longer be made. Indeed, given the nature of its
business, it is clear that Dunn Equipment will continue to be
liable for alternative minimum taxes for the foreseeable future.
It is because Dunn Equipment will continue to pay
alternative minimum tax that the hypothetical buyer and seller
would place no value on the embedded tax credits. Section 55(a)
defines the alternative minimum tax as the excess, if any, of the
“tentative minimum tax” over the “regular tax”. Sec. 55(b) and
(c). Under section 38(c), the investment tax credit is available
only if the company’s “net income tax” exceeds its tentative
minimum tax. Net income tax means the sum of the regular tax and
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