Estate of Frazier Jelke III, Deceased, Wachovia Bank, N.A., f.k.a. First Union National Bank, Personal Representative - Page 12

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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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