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difficulties in connection with the Deputy family. Accordingly,
five discount points would be more appropriate to reflect the
restriction situation in these cases.
Finally, the sixth category, which addresses dividend payout
history, seems to address the return on capital factor. In this
category, Mr. Dorman selected the poorest rating of 14 discount
points from an arithmetic progression by 3, ranging from 2 to 14.
His reason for the rating is that Godfrey has not paid any
dividends and it is unlikely that any will be paid in the future.
However, the actual payment of dividends is not the sole measure.
The potential to pay dividends must also be considered. A return
may also be expected in the form of increase in the value of the
investment or potential for capital gain. In other words,
prospective earning power is important. See sec. 20.2031-2(f),
Estate Tax Regs.; Rev. Rul. 59-60, 1959-1 C.B. 237.
Mr. Dorman’s analysis completely ignores any potential for
gain due to increase in value. Godfrey’s financial performance
and future prospects would likely result in an increase in the
investment value. The lack of dividends, when factored with the
prospect of capital appreciation, would place Godfrey’s return
potential more in the middle range. Accordingly, 8 discount
points would seem a better match than the 14 discount points
attributed by Mr. Dorman to this aspect.
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