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sale of paint and coatings). Here, Mondavi and Canandaigua were,
at best, involved in similar lines of business. Under section
2031(b) and section 20.2031-2(f), Estate Tax Regs., publicly held
companies involved in similar lines of business may constitute
guideline companies, and we have so held. See, e.g., Estate of
Gallo v. Commissioner, T.C. Memo. 1985-363, where, in valuing the
stock of the largest producer of wine in the United States, we
approved the use by taxpayer’s experts of comparables consisting
of companies in the brewing, distilling, soft drink, and even
food processing industries. But, in that case, the experts used
at least 10 companies as guideline companies. See also Estate of
Hall v. Commissioner, supra at 325, where we adopted an expert
report utilizing a market approach based upon a comparison with
six somewhat similar companies. As similarity to the company to
be valued decreases, the number of required comparables increases
in order to minimize the risk that the results will be distorted
by attributes unique to each of the guideline companies. In this
case, we find that Mondavi and Canandaigua were not sufficiently
similar to Korbel to permit the use of a market approach based
upon those two companies alone.6
6 Dr. Bajaj argues that only companies that are “primarily
champagne/sparkling wine producers like Korbel” constitute
permissible guideline companies. Because no such publicly traded
company existed, Dr. Bajaj rejected the market approach. We find
Dr. Bajaj’s approach to be unduly narrow (in theory), in light of
the case law cited in the text. Nonetheless, we agree, albeit
for different reasons, that respondent improperly applied the
market approach in this case.
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