Robert Dallas - Page 16

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          convincing than Empire’s and MPI’s reports and the testimony in             
          support of those reports.  AE’s report and the testimony of                 
          Vandervliet and Kettell were cogent and thorough.  Vandervliet              
          and Kettell wrote the AE report and explained it clearly.                   
          Empire’s letter report was, by its terms, limited.  Nammacher’s             
          testimony in support of Empire’s report was unconvincing for                
          reasons stated at paragraph C-2-b-ii, below.  MPI copied portions           
          of its report verbatim from the Empire report.                              
               2.   Tax-Affecting                                                     
                    a.   Background                                                   
               Petitioner’s expert witnesses reduced DGA’s projected income           
          by 40 percent (Empire) and 35 percent (MPI) based on “tax-                  
          affecting”.  Empire reduced DGA’s projected profits by 40 percent           
          on the assumption that, after a sale, the corporation will lose             
          its S corporation status.8  See, e.g., Gross v. Commissioner, T.C.          
          Memo. 1999-254, affd. 272 F.3d 333 (6th Cir. 2001).  MPI reduced            
          DGA’s projected profits by 35 percent because a shareholder is              

               8  The income of a C corporation is subject to income tax at           
          the corporate level, and shareholders are taxed on dividends paid           
          by a C corporation.  Secs. 11, 61.  In contrast, the income of an           
          S corporation generally is not taxed at the corporate level, but            
          is passed through to the shareholder and taxed to the shareholder           
          when earned, whether or not the corporation pays dividends.  Sec.           
          1366.                                                                       
               Nammacher’s testimony suggests that Empire tax-affected                
          DGA’s earnings on the assumption that DGA would lose its S                  
          corporation status after or as a result of the hypothetical sale            
          of its stock.  Oliver testified that this is why MPI tax-affected           
          DGA’s earnings.                                                             




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