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With respect to the cash and margin accounts, Deloitte
performed an actuarial study of petitioner’s comparable account
activity. Deloitte developed a survival curve reflecting the
rate of retirement and the age of the assets. The start and
termination dates for each account in existence from 1975 to 1989
were reviewed. On the basis of that analysis, it was determined
that cash and margin customer accounts had useful lives of 4 and
6 years, respectively.
Rose’s total revenues from cash and margin accounts were
determined to be $6,183,294 and $6,765,276, respectively.
Adjustments were then made to account for petitioner’s revenue
growth in the form of a 12-percent increase over each 4-year
period. Thereafter pretax earnings were derived by applying the
pretax profit margins petitioner used in its evaluation of the
Rose business entity. A 34-percent Federal tax rate was applied
to derive an after-tax income stream. Then the present value of
the income stream was determined by applying a 16-percent
discount. Using that methodology, the fair market values of
Rose’s cash and margin customer accounts were determined to be
$4,130,000 and $6,711,000, respectively.
Using the same methodology as used for the cash and margin
accounts, Deloitte determined that the useful life of the pension
customer accounts was 14.66 years (rounded to 15) with a fair
market value of $2,110,000. The total fair market value of the
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