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