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factors to be considered with other relevant factors in
determining fair market value, as required under Rev. Rul. 59-60,
1959-1 C.B. 237.
As previously discussed, the proper approach to determining
fair market value at the agreement date is to disregard the
depressive effect of the buy-sell agreement on value.
Accordingly, we do not follow SRC’s methodology, which
essentially treated the buy-sell agreements’ formula prices as
dispositive. Instead, we apply the average marketability
discounts for comparable companies to the freely traded values
determined by SRC to compute fair market value at the agreement
dates. For Belle Fourche, fair market value of a 1-percent
interest on August 2, 1971, was $38,270 (or $80.40 per share),49
whereas tax book value on that date was $18,416 (or $38.69 per
share). For True Oil, fair market value of an 8-percent
partnership interest on August 1, 1973, was $353,100,50 whereas
tax book value on that date was $54,653. We therefore conclude
that tax book value did not equal fair market value of the
transferred interests in Belle Fourche and True Oil as of the
buy-sell agreement dates.
49Freely traded value of $120 per share multiplied by 476
shares transferred, the product of which is then discounted by 33
percent (average marketability discount averted to by SRC).
50Freely traded value of $535,000 discounted by 34 percent
(average marketability discount averted to by SRC).
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