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Petitioner relies on Eisenberg v. Commissioner, 155 F.3d 50
(2d Cir. 1998), revg. T.C. Memo. 1997-483, and Estate of Davis v.
Commissioner, 110 T.C. 530, 546-547 (1998). Those cases,
however, are distinguishable. In the contexts of those cases,
the hypothetical buyer and seller would have considered a factor
for built-in capital gains in determining a price for closely
held stock in a corporation. In Eisenberg, the Court of Appeals
emphasized that earlier Tax Court cases declining to recognize a
discount for unrealized capital gains were based on the ability
of the corporation, under the doctrine of General Utilities &
Operating Co. v. Helvering, 296 U.S. 200 (1935), to liquidate and
distribute property to its shareholders without recognizing
built-in gain or loss and thus circumvent double taxation. The
Court of Appeals went on to explain that the tax-favorable
options ended with the Tax Reform Act of 1986, Pub. L. 99-514,
sec. 631, 100 Stat. 2085, 2269. In reversing our grant of
summary judgment on this issue and remanding the case for
determination of gift tax liability, the Court of Appeals cited
and quoted from Estate of Davis v. Commissioner, supra, in
support of its reasoning.
In Estate of Davis, the Court rejected the Government’s
argument that no discount for built-in capital gains should apply
because of the possibility that the corporation could convert to
an S corporation and avoid recognition of gains on assets
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