Peter S. Peracchio - Page 8

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          interests (the gifted interest and the sold interest,4                      
          respectively, and, collectively, the transferred interests) in              
          Peracchio Investors, L.P. (the partnership) transferred by                  
          petitioner to the Peracchio Family Trust (the trust) in separate            
          transactions occurring on November 25, 1997 (the valuation date).           
          The parties agree that, because the partnership’s assets on the             
          valuation date consisted entirely of cash and marketable                    
          securities, the partnership’s net asset value (NAV) on that date            
          is the appropriate starting point for determining the fair market           
          value of the transferred interests.  The parties further agree              
          that, in valuing the transferred interests, it is appropriate to            
          discount each interest’s pro rata share of the partnership’s NAV            
          to reflect the lack of control and lack of marketability inherent           
          in the transferred interests.  The parties disagree on the                  
          magnitude of those discounts.  For purposes of reporting the                
          value of the gifted interest on his Federal gift tax return and             
          establishing the consideration for the sold interest, petitioner            
          applied a combined discount of 40 percent.  Respondent contends             
          that 4.4-percent and 15-percent discounts for lack of control and           
          lack of marketability, respectively, are appropriate, yielding a            
          combined discount (applying the separate discounts serially) of             
          18.74 percent.                                                              

               4  We use the term “sold interest” solely for descriptive              
          convenience (i.e., without regard to the proper characterization,           
          for Federal gift tax purposes, of petitioner’s transfer of that             
          interest).                                                                  




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