- 27 -
Respondent also challenges Mr. Frazier’s reduction in net
asset value for potential tax liability on built-in capital
gains. Mr. Frazier reduced his asset-based value by 34 percent
of the built-in capital gain, again on the assumption that he was
calculating a liquidation value. Respondent argues that no
reduction is proper because liquidation was not imminent. In
Estate of Davis v. Commissioner, 110 T.C. 530, 550 (1998), we
applied a reduction for inherent gain “even though no liquidation
* * * was planned or contemplated on the valuation date”.
However, there are significant distinctions between that case and
the instant case. In Estate of Davis, the company in question
was essentially a holding company, and the primary asset it held
was a block of publicly traded stock with substantial built-in
capital gain.11 Because the hypothetical buyer of the shares in
issue in that case could buy the same publicly traded stock on
the open market without the exposure to capital gains tax, we
found that “there was even less of a ready market” in the shares
in issue “than there would have been * * * without such tax.”
Id. at 553. Thus, we included, within the discount for lack of
marketability, a reduction with respect to the inherent capital
gains of approximately 15 percent. See id. at 554.
11 The fair market value of the stock was $70,043,204, while
the company’s basis in that stock was $338,283. See Estate of
Davis v. Commissioner, 110 T.C. 530, 533 (1998). The company
owned other assets worth $11,929,763 and had liabilities of
$1,832,698. See id.
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