Estate of William G. Adams, Jr. Deceased, George W. Saenger, Executor - Page 14




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               The estate contends that Shriner’s estimates of WSA’s                  
          prospective net cashflows are before corporate tax.  The estate             
          also contends that Shriner properly converted the capitalization            
          rate from an after corporate tax rate to a before corporate tax             
          rate to match estimated prospective net cashflows and that the              
          conversion increased his capitalization rate from 20.53 percent             
          to 31.88 percent.  We disagree with the estate on both points.              
               We disagree that Shriner’s estimates of WSA’s prospective              
          net cashflows are before corporate tax because it is appropriate            
          to use a zero corporate tax rate to estimate net cashflow when              
          the stock being valued is stock of an S corporation.  Gross v.              
          Commissioner, supra.  WSA is an S corporation, and its cashflows            
          are subject to a zero corporate tax rate.  Thus, Shriner’s                  
          estimates of WSA’s prospective net cashflows are after corporate            
          tax (zero corporate tax rate) and not before corporate tax as the           
          estate contends.                                                            
               We disagree that Shriner properly converted the                        
          capitalization rate because there was no need to do so.  The                
          parties agree that Shriner’s estimated capitalization rate                  
          (before he converted it to before corporate tax) is an after                
          corporate tax rate.  Thus, as in Gross, the tax character of                
          Shriner’s estimate of WSA’s prospective net cashflows matches               
          that of the unconverted capitalization rate because both are                
          after corporate tax.  It follows that Shriner should not have               






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