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that a reduction for built-in capital gain tax liability is
appropriate. However, controversy continues with respect to
valuing such a reduction. In two such cases involving the
question of valuing reductions for built-in capital gain tax
liabilities, the Court of Appeals for the Fifth Circuit has
reversed our holdings. See Estate of Dunn v. Commissioner,
supra; Estate of Jameson v. Commissioner, supra.
In Estate of Jameson, the decedent held a controlling
interest in a corporation that generated income primarily through
the sale of appreciated timber. The corporation in Estate of
Jameson focused on future appreciation in value, and there was no
intent to liquidate the corporation as of the valuation date.
This Court held that the fair market value was best determined
using the asset approach because the company was a holding
company rather than an operating company. We also held that the
net asset value should be reduced for built-in capital gain tax
liability because of a section 631(a) election that ensured that
gain would be recognized irrespective of whether the corporation
was liquidated. We further held that the amounts of capital gain
tax to be recognized in future years were to be discounted to
present values by assuming a 14-percent overall rate of return
and a 20-percent discount rate of future cashflows.
The Court of Appeals for the Fifth Circuit reversed our
holding, commenting that the application of a 20-percent discount
rate while assuming no more than a 14-percent annual growth was
“internally inconsistent”. Estate of Jameson v. Commissioner,
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