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The buy-sell agreements did not provide a mechanism for
periodic review or adjustment to the book value purchase price
formula, other than what would occur as a result of changes in
book value.
Messrs. Harris and Tangney recommended that Dave True obtain
an appraisal of True Oil’s oil and gas reserves contemporaneously
with the gifts to the children because they expected the book
value gift valuation to be challenged by the Internal Revenue
Service (IRS). Either the True Companies or Dave and Jean True,
personally, had been audited for income tax purposes regularly in
all tax years preceding the gifts. The appraisal was prepared by
Bernie Allen14 (B. Allen report), an engineer from Casper,
Wyoming, before Dave True made the gifts of True Oil interests to
his children. No appraisal of Belle Fourche was prepared
contemporaneously with the sale of 1-percent interests to the
True children.
The B. Allen report indicated that as of August 1, 1973,
True Oil had reserves of 5,297,528 barrels of proved developed
oil and 8,551,994 thousand cubic feet (Mcf) of proved developed
gas, and that the fair market value of its oil and gas properties
14The B. Allen report was not admitted into evidence because
it could not be located at the time of trial. However, the SRC
appraisal prepared for purposes of the subsequent True Oil gift
tax case cited valuation data derived from the B. Allen report.
We assume that the information contained in the SRC appraisal
accurately reflects the data set forth in the B. Allen report.
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