Robert Dallas - Page 10

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          Felowitz’s estimate that the stock was worth $650 per share.6               
          Felowitz assumed that Empire had correctly valued DGA stock at              
          $620 per share as of November 29, 1999, and estimated that the              
          value had increased to $650 per share as of November 29, 2000.              
               The 2000 sale agreements between Fay’s estate and the trusts           
          had the following share adjustment clause:                                  
               In the event that the value of the Shares is finally                   
               determined in any IRS proceeding to be greater than                    
               $650 per share, the number of shares purchased and sold                
               hereunder shall be reduced to the number which is the                  
               quotient of $1,921,400 divided by the value per share                  
               determined in such proceeding.  In such event, Buyer                   
               shall transfer to Seller, for no additional                            
               consideration, the number of Shares which is equal to                  
               the difference between 2,956 minus the quotient                        
               determined under this Section 1.3.                                     
          The 2000 notes did not have a self-canceling clause.                        
               Respondent audited petitioner’s 1999 gift tax return in                
          2001.  During the audit, respondent’s tax examiner told Rosenberg           
          that the 1999 notes were self-canceling and thus were worth less            
          than face value because the notes were canceled if the holder of            
          the notes died before payment.                                              
               On June 21, 2001, after respondent’s tax examiner told                 
          Rosenberg about the self-canceling 1999 notes, petitioner and the           
          trustees of the trusts executed new promissory notes that were              


               6  The parties do not dispute that the transfers on Nov. 29,           
          2000, are treated as made by petitioner because the shares of DGA           
          transferred in the 2000 transaction would have passed to him if             
          Fay’s estate had not transferred them to the trusts.                        






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