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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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