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We accept the agreement of the parties that controlling
equity value on a net asset basis was $1,139,080 as of June 3,
1994. However, we reject respondent’s swing vote argument, for
the reasons stated in our analysis of True Oil. See supra pp.
201-202.
We find the final Lax report’s combined discount of 60
percent to be excessive and unsubstantiated. Mr. Lax solely
relied on sales of registered real estate limited partnership
interests as benchmarks for the discount he applied to White
Stallion. However, we do not believe that registered real estate
limited partnerships are comparable to White Stallion, an
operating dude ranch organized as an S corporation. Further, we
cannot evaluate the reasonableness of the final Lax report’s
minority discount relative to Mr. Kimball’s, because of Mr. Lax’s
combined discount approach. We are not convinced that using a
combined discount is appropriate, inasmuch as marketability and
minority discounts are conceptually distinct. See Estate of
Newhouse v. Commissioner, 94 T.C. at 249.
The final Lax report did not discuss the requirements for
control under Arizona law or White Stallion’s governing documents
before concluding that Dave True’s interest lacked control. In
addition, Mr. Lax did not provide a theoretical basis for his
change in approach to calculating discounts (going from separate
to combined discounts) between the initial and final Lax reports.
This makes Mr. Lax’s conclusions seem arbitrary.
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