- 13 - We disagree with Mr. Kelley’s use of a discounted cashflow analysis for two reasons. First, Mr. Kelley did not determine Phase 5’s fair market value on the appropriate date--the date of death. Because we are determining fair market value on the date of death, it necessarily follows that the hypothetical sale between a willing buyer and a willing seller consummates on the date of death. See United States v. Cartwright, 411 U.S. at 551; sec. 20.2031-1(b), Estate Tax Regs. Mr. Kelley did not determine the price at which Phase 5 would change hands between a willing buyer and a willing seller on the date of death. Instead, he determined the price at which Phase 5 would change hands 3 years after the date of death and then discounted this amount by 12 percent annually for 3 years, as demonstrated by his testimony: “In my valuation analysis, I’m appraising it for a buyer that would most probably buy it three years from the date of valuation, because I didn’t feel that it was really marketable at that point in time and therefore, I needed to discount that value over a 3-year period.” Second, we do not agree with Mr. Kelley’s conclusions on which he based his use of a discounted cashflow analysis. By using a discounted cashflow analysis, Mr. Kelley attempted to reduce Phase 5’s value to account for: (1) The uncertainty of offsite costs; (2) the City of Sherwood’s stance on furtherPage: Previous 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 Next
Last modified: May 25, 2011