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converted the capitalization rate from after corporate tax to
before corporate tax because the tax character of both his
estimated net cashflows for WSA and unconverted capitalization
rates is after corporate tax.
We conclude that Shriner improperly increased the
capitalization rate from 20.53 percent to 31.88 percent.7
4. Conclusion
The following shows the value of decedent’s interest in WSA
on September 28, 1995, before applying a discount for lack of
marketability:
Normalized net cashflows $595,746
Capitalization rate � 20.53%
Capitalized net cashflows – total entity 1$2,901,831
Equity interest of 61.59 percent x .6159
Value of decedent’s interest 2$1,787,238
1 $595,746/.2053 = $2,901,831.
2 Before discount for lack of marketability.
E. Discount for Lack of Marketability
Both experts applied a discount for lack of marketability
because there was no ready market for WSA stock on September 28,
1995. We agree that a discount for lack of marketability is
appropriate.
7 The result here of a zero corporate tax on estimated
prospective cashflows and no conversion of the capitalization
rate from after corporate tax to before corporate tax is
identical to the result in Gross v. Commissioner, T.C. Memo.
1999-254, affd. 272 F.3d 333 (6th Cir. 2001), of zero corporate
tax rate on estimated cashflows and a discount rate with no
conversion from after corporate tax to before corporate tax.
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