Donald L. Walford - Page 28

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                    6.   Discount Rate                                                
               The parties generally disagree as to the appropriate                   
          discount rate to apply.  Petitioner claims that the appropriate             
          rate is 15 percent while respondent contends that it is 18.96               
          percent.  The parties rely on expert reports and our opinion in             
          Gianaris v. Commissioner, T.C. Memo. 1992-642.                              
               In Gianaris, we stated that the experts in that case had               
          testified and the taxpayers had not challenged that long-term               
          U.S. Government bonds yielded, on average, about 11.5 or 11.6               
          percent in 1980 and 13 percent in 1982.  We felt that a premium,            
          above the benchmark rate of return on U.S. Government debt, was             
          necessary to compensate for the additional risk involved in the             
          partnerships.  We stated that profit-seeking investors in similar           
          EMS tax shelters would reasonably have required a rate of return            
          of no less than 15 percent.  However, for purposes of making our            
          calculations, we assumed discount rates equal to the rate of                
          return on U.S. Government debt because if the investments did not           
          show profit at those interest rates, then they would not show               
          profit at the higher rates it could be assumed a profit-seeking             
          investor would demand.                                                      
               Petitioner relies in part on our statements in Gianaris as a           
          basis for his contention that the appropriate discount rate is 15           
          percent.  In further support of his position, petitioner                    
          presented the report and testimony of Douglas J. Horvey (Mr.                






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