Estate of Marcia P. Hoffman, deceased, Elisabeth Hoffman, Personal Representative - Page 37




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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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