- 7 -
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).
Page: Previous 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 Next
Last modified: May 25, 2011