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The Court of Appeals for the Fifth Circuit, in reversing our
holding in Estate of Dunn, held that the use of an asset-based
approach to value assets generally assumes a sale of all
corporate assets or a liquidation of the corporation on the
valuation date, requiring a dollar-for-dollar reduction for the
entire built-in capital gain tax liability as a matter of law.
Estate of Dunn v. Commissioner, 301 F.3d at 351-353.8 The Court
of Appeals also concluded that the likelihood of liquidation had
no place in a court’s decision as to whether there should be a
reduction for built-in tax liability under either the asset-based
approach or the earnings-based approach. Id. at 353-354. The
Court of Appeals did indicate, however, that the likelihood of
liquidation would be relevant in assigning relative weights to
the asset and earnings approaches where both methods would be
used to determine value. Id. at 354-357.
With that background, we proceed to consider the
circumstances and arguments in this case. The estate reported
$4,588,155 as the discounted value of the CCC interest.
Respondent determined that the discounted value of the CCC
interest was $9,111,111. Although the estate’s expert, Mr.
Frazier, concluded that the discounted value of the CCC interest
was $4,301,000, the estate is not seeking a value less than that
reported on the estate tax return. Likewise, respondent relies
8 However, the Court of Appeals for the Fifth Circuit
stated that consideration of built-in capital gain would be
inappropriate in an earnings-based approach to value.
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