Estate of Marcia P. Hoffman, deceased, Elisabeth Hoffman, Personal Representative - Page 34




                                       - 34 -                                         
          limitations of the various classes of stock must be considered in           
          making valuation determinations.  See Estate of Newhouse v.                 
          Commissioner, 94 T.C. 193, 218 (1990); Estate of Anderson v.                
          Commissioner, T.C. Memo. 1988-511.  The factors to be considered            
          are those that an informed buyer and an informed seller would               
          take into account.  See Hamm v. Commissioner, 325 F.2d 934, 940             
          (8th Cir. 1963), affg. T.C. Memo. 1961-347.                                 
               Respondent relied on his appraiser, Mr. Mitchell, who valued           
          WLI using a capitalized income analysis.  The key components                
          under Mr. Mitchell’s capitalized income analysis were:  (1) The             
          determination of a reasonable level for net profits or net cash-            
          flow; (2) an appropriate cost of capital; and (3) a reasonable              
          rate of growth for the profit stream.  Mr. Mitchell relied on               
          relevant financial information of WLI for 1991, 1992, and 1993,             
          to determine the value of the WLI stock.                                    
               Mr. Mitchell examined the revenues and expenses associated             
          with WLI’s operations for the years 1991, 1992, and 1993, and,              
          after averaging the 3 years, he concluded that a reasonable level           
          for net profits or net cash-flow, before tax, was $630,000.  In             
          order to reach this conclusion, Mr. Mitchell adjusted WLI’s                 
          earnings for 1993 to reflect intercompany transactions with SCC,            
          but he did not adjust WLI’s earnings for 1991 or 1992 to account            
          for intercompany transactions with SCC and affiliates.                      








Page:  Previous  22  23  24  25  26  27  28  29  30  31  32  33  34  35  36  37  38  39  40  41  Next

Last modified: May 25, 2011