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liable for income tax on S corporation profits even if those
profits are not distributed to the shareholder.
b. Whether To Assume DGA Would Cease Being an S
Corporation
Petitioner points out that DGA’s S corporation election
could be ended at any time. Petitioner also points out that some
potential buyers (e.g., C corporations) of DGA stock are not
qualified to be S corporation shareholders. See secs.
1361(b)(1), 1362(d)(2).
There is no evidence in the record that DGA expects to cease
to qualify as an S corporation. DGA has a history of
distributing enough earnings for shareholders to pay their
individual income tax liabilities on DGA’s earnings. There is no
evidence that DGA intends to change its practice of distributing
enough to cover individual income tax liability.9 See Davis v.
9 Petitioner contends that DGA’s practice of distributing
only enough to cover individual income tax liability
distinguishes this case from Gross v. Commissioner, T.C. Memo.
1999-254, in which the corporation distributed substantially all
of its income, and thus tax-affecting is appropriate here.
Whether tax-affecting applies turns on valuation principles
including consideration of the hypothetical willing seller and
buyer, the experts, and specific facts of the case, Gross v.
Commissioner, 272 F.3d at 351-352, and not necessarily on
formulas and opinions proffered by an expert witness, see
Anderson v. Commissioner, 250 F.2d 242, 249 (5th Cir. 1957),
affg. in part and remanding in part on another ground T.C. Memo.
1956-178; Estate of Newhouse v. Commissioner, 94 T.C. 193, 217
(1990); Estate of Hall v. Commissioner, 92 T.C. 312, 338 (1989).
In addition, petitioner misunderstands our analysis of the effect
of a shareholder-level tax in Gross v. Commissioner, supra. Our
analysis did not depend on the proportion of corporate income
(continued...)
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