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In the instant case, the primary assets in question are
equipment, not publicly traded stock (although Dunn Equipment
also had some real estate). In using a 34-percent reduction, Mr.
Frazier failed to consider that the hypothetical buyer who did
not wish to continue operating the company, and who was able to
convince additional shareholders to form a super-majority, had
other options besides liquidation. A new owner who wished to
change the business of the company into, for example,
construction rather than equipment rental, would not have a need
to buy new equipment every few years, and could use the equipment
the company owned for its entire useful life, eliminating the
realization of built-in gain. This goal could also be
accomplished by forming a new corporation engaged in the
construction business; sections 351 and 361 would permit Dunn
Equipment to transfer equipment to the new corporation in
exchange for its stock, without recognition of gain on the
transfer. Only if the buyer intended to liquidate in the short
term would that buyer seek a substantial reduction for built-in
capital gain. We believe that there is some chance that the
hypothetical buyer would have purchased the stock in issue with
the intent to liquidate, although, as we have explained, the
likelihood of liquidation was rather low. Nonetheless, we
believe that the presence of built-in gain would reduce the
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