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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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