Robert Dallas - Page 7

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          reasonable buyer would assume that DGA’s net income would be                
          reduced by 40 percent due to tax-affecting.3                                
               Empire also assumed that executive compensation for                    
          petitioner and his sons would be set at about $1.4 million per              
          year, causing DGA’s future annual earnings to increase.  Empire             
          applied a 15-percent discount for lack of control and a 35-                 
          percent discount for lack of marketability.  Empire concluded               
          that the fair market value of a minority interest of DGA stock              
          was $610 per share as of January 24, 1999.                                  
               The GRATs terminated in 1999, and 4,100 shares of DGA stock            
          were transferred to Robert and David.  Also in 1999, petitioner             
          acquired 78 additional shares of series B stock.                            
               DGA used retained earnings to expand.  DGA paid enough                 
          dividends to its shareholders (petitioner, his sons, and the                
          trusts established for his sons) to pay income tax that resulted            
          from dividend distributions.                                                






               3  Generally speaking, in the context of valuation of stock            
          of an S corporation, “tax-affecting” is the discounting of                  
          estimated future corporate earnings on the basis of assumed                 
          future tax burdens imposed on those earnings, such as from the              
          loss of S corporation status and imposition of corporate-level              
          tax.  See Gross v. Commissioner, T.C. Memo. 1999-254, affd. 272             
          F.3d 333 (6th Cir. 2001); Bogdanski, Federal Tax Valuation, par.            
          6.03[6][e][i], at S-36-38 (2006 & Supp. 2006).                              






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