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The particular aspect of the valuation question we consider
here concerns the reduction for potential tax liability for gains
“built in” to the securities held in CCC’s corporate solution.
The estate contends that the market value of CCC’s holdings
should be reduced by the entire amount of the built-in capital
gain tax liability that would be due if all of the assets
(securities) were sold as of decedent’s date of death.
Respondent, admitting that there should be a discount or
reduction,5 contends that the potential tax liability should be
discounted in accordance with time value of money principles.
The estate attempts to support its position through an
expert who purports to use a net asset approach to valuation,
which the estate contends requires an assumption of liquidation
on the valuation date.6 The estate relies on the rationale of an
appellate court to which appeal would not normally lie in this
case. Respondent attempts to support his position through an
expert who contends that an assumption of liquidation is not
5 Because the built-in capital gain tax liability is a
corporate liability, it reduces the total value of the
corporation. The parties here and some courts have described the
built-in capital gain tax liability as something to be considered
in the process of discounting the value of the interest being
valued. In this case we treat the built-in capital gain tax
liability as a liability that reduces the value of the assets
before the consideration of discounts from the value of the
interest for lack of control or marketability.
6 If CCC were liquidated on the valuation date, it would
essentially be selling readily marketable securities that would
result in long-term capital gains and tax liability thereon.
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