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percent, which was payable monthly. If the interest was not
paid, the amount of interest became part of the principal and was
compounded. The note payable had been secured by a security
interest in substantially all of Harlee’s assets and had been
recorded by Harlee as a current liability.
Approximately 4 years later and during the examination of
the estate’s tax return, the estate’s attorneys arranged a
meeting with Mr. Sherman and senior management at Harlee to
review and discuss the Sherman Appraisal. One week later, Mr.
Sherman wrote a letter to one of the estate’s representatives
claiming that he had made an error on the Sherman Appraisal. He
explained that “During * * * [the] meeting * * * last week, new
information was presented to me that was not considered in * * *
[the Sherman Appraisal] in 1995.” Mr. Sherman stated that his
error resulted from a misunderstanding as to inventory policy and
existing liabilities.
A statutory notice of deficiency was issued to the estate on
December 6, 1999.
OPINION
We consider here the fair market value of a closely held
business and whether any discount is appropriate. The estate
reported Harlee’s fair market value at $2,091,750 based on an
appraisal that was attached to its estate tax return. Respondent
initially determined that the fair market value was $2,718,358 in
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