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e. Failure To Obtain or Rely on Appraisals
in Selecting Formula Price
Dave True obtained an appraisal (the B. Allen report) of
True Oil’s oil and gas reserves contemporaneously with the 1973
gifts to his children. Mr. Harris had suggested the appraisal
because he expected the tax book value gift valuation to be
challenged by the IRS. Petitioners provided no evidence of
contemporaneous appraisals of any of the other True companies.
The B. Allen report found that, as of August 1, 1973, the fair
market value of True Oil’s oil and gas properties was $9,941,000.
SRC later used this information to prepare its forensic appraisal
of True Oil in connection with the 1973 gift tax case. SRC
determined that the freely traded value of an 8-percent interest
in True Oil (as of August 1, 1973) would have been $535,000, as
compared with the tax book value of $54,653. The results of the
B. Allen report were discussed at family meetings, but there is
no clear evidence that the children reviewed the report in detail
before signing the True Oil buy-sell agreement.
Petitioners suggest that the logical inferences to be drawn
from the procurement of the B. Allen report were that: (1) Dave
True wanted to assure that his children had sufficient knowledge
of True Oil’s asset values so that their consent to the book
value price was informed, and (2) he obtained the report to help
determine whether to use a tax book value formula price in True
Oil’s buy-sell agreement. While these may have been secondary
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