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Mr. Mitchell applied a 35-percent discount for lack of
marketability, reducing the per share value of WLI to $694. Mr.
Mitchell multiplied the per share value by the 770 shares owned
by decedent and concluded that the approximate value of
decedent’s stock interest in WLI, as of August 18, 1994, was
$534,000.
The use of CAPM is questionable when valuing small, closely
held companies. This Court has recently observed:
We do not believe that CAPM * * * [is] the proper
analytical [tool] to value a small, closely held
corporation with little possibility of going public.
CAPM is a financial model intended to explain the
behavior of publicly traded securities that has been
subjected to empirical validation using only historical
data of the two largest U.S. stock markets. * * *
[Furman v. Commissioner, T.C. Memo. 1998-157.]
See also Estate of Klauss v. Commissioner, T.C. Memo. 2000-191
(rejecting use of CAPM to value small, closely held corporation
with little possibility of going public); Estate of Maggos v.
Commissioner, T.C. Memo. 2000-129 (same); Estate of Hendrickson
v. Commissioner, T.C. Memo. 1999-278 (same). As of the valuation
date, WLI was an S corporation with five shareholders owning all
its outstanding stock. In his valuation of WLI, Mr. Mitchell
states that WLI “would not have been expected to pursue a public
offering of its stock.” The only reference in the record to the
possibility of WLI going public is found in Mr. Hoffman’s
testimony regarding the guaranty obligation, wherein he stated
that the guaranty obligation, as it related to the potential
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