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timely filed a Form 706, United States Estate (and Generation-
Skipping Transfer) Tax Return (the estate tax return) on May 15,
1996. Petitioner did not elect alternate valuation. See sec.
2032. In the estate tax return, petitioner valued the shares at
$16,380,000, or $26,000 a share. In determining a deficiency in
estate tax, respondent valued the shares at $30,177,000, or
$47,900 a share.
Organization and Operation of Korbel
Korbel was formed in 1903. Its business began in 1860, when
three Korbel brothers purchased property in Guerneville,
California, for the logging of timber. A decade later, vinifera
grapes were planted on the property, and, in 1882, the first
bottle of champagne was produced. Korbel has produced champagne
on the property, utilizing the traditional “methode
champenoise”,1 ever since.
1 Champagne or sparkling wine (although the name
“champagne”, technically, refers to sparkling wine produced in
the Champagne region of France, the terms “champagne” and
“sparkling wine” are often used interchangeably, and are so used
herein) is, in essence, wine that has been subject to a second
fermentation. Premium brands, such as Korbel, utilize the French
“methode champenoise”, pursuant to which the second fermentation
and all subsequent steps such as the removal of impurities and
the addition of flavoring components take place while the
champagne is in the bottle that is ultimately sold to the public.
That method is much more expensive and is considered far superior
to methods, such as the “Charmat process” or the “transfer
method”, pursuant to which certain steps do not take place in the
bottle.
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Last modified: May 25, 2011