- 28 - restricted stock of publicly traded corporations.11 C&L Bailey is not a publicly traded corporation. Consequently, we are unpersuaded that Schwartz appropriately relied on these restricted stock studies in deriving his recommended 40-percent marketability discount. See Furman v. Commissioner, T.C. Memo. 1998-157; Mandelbaum v. Commissioner, T.C. Memo. 1995-255, affd. 91 F.3d 124 (3d Cir. 1996). Respondent’s Expert Smith’s recommended 27.44-percent marketability discount represents the sum of his recommended 21.44-percent discount for the tax on built-in gains of C&L Bailey’s assets and a 6-percent discount for “stock sale costs”. To derive his recommended discount for tax on built-in gains, Smith assumed that the value of C&L Bailey’s assets would be $4,160,177, after an assumed 5-year holding period, during which he assumed the assets would grow at an annual rate of 2 percent. He assumed selling expenses of 7 percent and estimated that at the end of the assumed 5-year holding period the tax basis of the assets would be $1,721,279, yielding an estimated gain of $2,147,686, to which he applied an assumed combined Federal and State tax rate of 39.06 percent, to yield an estimated tax on potential gain of $838,886. Smith concluded 11 Ironically, petitioner criticizes the report of respondent’s expert, Smith, for inappropriately relying on studies of publicly traded companies in arriving at his recommended 20-percent minority discount.Page: Previous 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 Next
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