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possibility that sales of CCC’s securities would have occurred
after decedent’s date of death. In other words, Mr. Frazier
relied on the net asset method to employ an assumption of
liquidation as of the valuation date, an event which would
trigger recognition of $51,626,884 in capital gain tax. This
method produced a $137,008,949 million value for CCC. Mr.
Frazier then computed an undiscounted value of $8,823,062 for
decedent’s 6.44-percent interest (3,000 of 46,585.51 shares) held
in trust.
Respondent’s expert, Mr. Shaked, started with the same
market value of CCC’s securities. Mr. Shaked then reduced the
assets by liabilities, but he used a different approach from Mr.
Frazier’s in arriving at a reduction for the built-in capital
gain tax liability. First, he computed CCC’s average securities
turnover by reference to the most recent data (1994-98). Using
that data, Mr. Shaked computed a 5.95-percent average annual
turnover derived from the parties’ stipulated asset turnover
rates for 1994-98. Mr. Shaked believed that the 5.95-percent
rate was conservative,9 because the turnover trend was generally
decreasing. The use of the 5.95-percent turnover rate results in
the capital gain tax’s being incurred over a 16.8-year period
(100 percent divided by 5.95 percent).
Mr. Shaked then divided the $51,626,884 tax liability by 16
years to arrive at the average annual capital gain tax liability
9 The use of a higher turnover rate would increase capital
gain tax and decrease the value of decedent’s CCC shares.
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