Estate of Lewis A. Bailey, Deceased, Frances Jeanette Foster, Executrix - Page 28




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          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.                                   





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