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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 further
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