- 53 -
that each petitioner transferred intangible assets with some value
to SMF, petitioners would still have failed to show that the value
of what they transferred exceeded the value of what they received
in return. As previously outlined, the consideration petitioners
34(...continued)
entity. Norwalk v. Commissioner, supra. We also believe that,
under the willing buyer/willing seller standard of fair market
value enunciated in Rev. Proc. 59-60, 1959-1 C.B. 237, to which
Mr. Dutcher purportedly adhered, a willing buyer of SWMG on the
transaction date would have insisted on a significant discount
with respect to the value of the entity's intangible assets,
precisely on account of the absence of noncompete agreements from
the SWMG physicians. Indeed, the SWMG physicians not only did
not execute noncompete agreements; they had the benefit of the
"free to compete" provision in the PSA which facilitated their
reclaiming their patients in the event they decided to cease
working for SWMG/SMF. Mr. Dutcher's failure to account for the
risk to his estimated 5-year stream of earnings posed by SWMG
physicians' departing with their patients is contrary to well-
established valuation principles and common sense, and results in
an inflated value for the SWMG physicians' goodwill.
(3) The Dutcher appraisal adopts the formula devised by Dr.
Levin, a nonexpert, for allocating the purported value of SWMG's
intangible assets among the SWMG physicians, without providing
any reasons or analysis to support or justify that choice. See
Mid-State Fertilizer Co. v. Exch. Natl. Bank, 877 F.2d 1333, 1340
(7th Cir. 1989); Estate of Jann v. Commissioner, T.C. Memo. 1990-
333. To the extent petitioners may not be relying on the Dutcher
appraisal to support the allocation formula used, the allocation
underlying the claimed charitable contribution deductions is not
the product of expert appraisal and should be rejected on that
account.
(4) The Dutcher appraisal takes no account of the $35,000
"Physician Access Bonus" payable to each SWMG physician over the
initial 2 years of the affiliation. Ignoring these payments when
computing distributable earnings that SWMG would generate results
in a overstatement of those earnings and a corresponding
overstatement of the value of SWMG's intangible assets (since,
under Mr. Dutcher's analysis, intangible asset value equals
present value of future distributable earnings, less tangible
assets and implied working capital).
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