- 20 -
was not quantified by HII management at the time of the gift.19
Petitioners fail to convince us that the alleged understatement
was known or knowable as of the gift date. Further, as a general
rule, subsequent events are not considered in fixing fair market
value, except to the extent that they were reasonably foreseeable
at the date of valuation. First Natl. Bank of Kenosha v. United
States, 763 F.2d 891, 894 (7th Cir. 1985); Estate of Gilford v.
Commissioner, 88 T.C. 38, 52 (1987). The record reflects that
the alleged understatement was not discovered or quantified until
1997, almost 2 years after the gift of HII stock and after the
audit of petitioners’ gift tax returns. On the basis of the
evidence in the record, we are not convinced that the discovery
of the alleged understatement was reasonably foreseeable on the
gift date.20
The adjustment proposed in the 1997 memorandum should not
have been considered in valuing the HII stock.21 Making this
19Petitioners allege that HII management informally
recognized the understatement of reserves as of Nov. 15, 1995,
but they had not quantified the amounts. They allege that the
understatement would have been discovered and quantified by an
investor conducting due diligence as of the date of the gift. We
are not convinced that due diligence or any other investigation
would have sufficiently disclosed the alleged understatement.
20Mr. Engstrom testified that, in his opinion, the
adjustment was not foreseeable as of the valuation date.
21Petitioners also allege that HII failed to follow the
substantial completion accounting rules in booking its sales for
1995; i.e., it booked sales prematurely. They claim that if
(continued...)
Page: Previous 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 NextLast modified: May 25, 2011