Estate of Marcia P. Hoffman, deceased, Elisabeth Hoffman, Personal Representative - Page 39




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          calculate beta is a significant shortcoming in the use of the               
          CAPM to value a closely held corporation.  See Furman v.                    
          Commissioner, supra.  Mr. Mitchell did not provide support for              
          the amount of the additional risk premium, other than citing the            
          source of the amount used, and he simply assumed a beta equal to            
          market risk.  In the instant case, respondent has failed to                 
          provide the evidence necessary for us to determine whether use of           
          CAPM was appropriate, and whether the figures used in his                   
          calculations were reliable.  See, e.g., Estate of Klauss v.                 
          Commissioner, supra; Estate of Maggos v. Commissioner, supra;               
          Estate of Hendrickson v. Commissioner, supra; Furman v.                     
          Commissioner, supra.                                                        
               Respondent’s valuation determination was also unclear in               
          another aspect.  Mr. Mitchell subtracted intercompany profits               
          only for 1993 when determining WLI’s earnings.34  Mr. Mitchell              
          stated that he was being conservative with respect to the net               
          earnings of WLI for 1993 and that is why he subtracted the                  
          intercompany profits.  Mr. Mitchell explained that it was                   
          appropriate to subtract the intercompany profits for 1993                   
          because, for financial reporting purposes, the activities of WLI            
          were combined with other entities having common ownership while             


               34Mr. Mitchell testified that he did not know for a fact               
          that the approximately $250,000 in intercompany profits should be           
          subtracted from WLI’s earnings but that he went ahead and did it            
          to be conservative.                                                         





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