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agree with Mr. Shaked’s approach of discounting the built-in
capital gain tax liability to reflect that it will be incurred
after the valuation date.
Because the tax liabilities are incurred when the securities
are sold, they must be indexed or discounted to account for the
time value of money. Thus, having found that a scenario of
complete liquidation is inappropriate, it is inappropriate to
reduce the value of CCC by the full amount of the built-in
capital gain tax liability. See Estate of Davis v. Commissioner,
110 T.C. at 552-553.12 If we were to adopt the estate’s reasoning
and consider future appreciation to arrive at subsequent tax
liability, we would be considering tax (that is not “built in”)
as of the valuation date. Such an approach would establish an
artificial liability. The estate’s approach, if used in valuing
a market-valued security with a basis equal to its fair market
value, would, in effect, predict its future appreciated value and
tax liability and then reduce its current fair market value by
the present value of a future tax liability.
In that same vein, the estate argues that the Government, in
other valuation cases, has offered experts who computed the
capital gain tax on the future appreciated value of assets and
discounted the tax to a present value for purposes of valuing a
corporation. In one of those cases, the Court was valuing a
12 See also Bittker & Lokken, Federal Taxation of Income,
Estates and Gifts, par. 135.3.8, at 135-149 (2d ed. 1993 and
supp. 2004).
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