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believed that only a 20-percent discount should be applicable.4
We must decide whether a discount for lack of marketability is
appropriate, and, if so, to what extent.
Mr. Wahlgren’s Report
To evaluate Mr. Wahlgren’s methodology for computing the
marketability discount, we first review his computation of the
value of the Company stock on a minority basis. Before making
any fair market value determinations, Mr. Wahlgren evaluated the
assets, liabilities, and stockholders’ equity amounts listed on
the Company’s and the Bank’s books. After reviewing the
historical book values of the assets and liabilities of the Bank,
Mr. Wahlgren increased the asset amounts primarily for loans
previously charged off (from which interest and principal were
subsequently being recovered) and increased liabilities for
deferred taxes associated with the increased amount in assets.
The Bank’s balance sheet was therefore adjusted as follows:
Balance Sheet
Items Hist. BV Adjustment Adjusted BV
Assets $23,953,000 $2,397,000 $26,350,000
Liabilities 19,436,000 815,000 20,251,000
Stockholders’
equity 4,517,000 1,582,000 6,099,000
4 Mr. Whalgren’s valuation for each of petitioners’
separate transfers results in an amount of $108,436 (($46.24 per
share x .3423) x 6,850 shares). This value is significantly
lower than the $145,357 value (per transfer) reported by
petitioners on their gift tax returns. A taxpayer who asserts a
valuation lower than the one reported on a tax return must
provide cogent proof that the reported valuation was erroneous.
See Estate of Hall v. Commissioner, 92 T.C. 312, 337-338 (1989).
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