Book Value, Restrictive Agreements and Valuation Experts: Case
Comparison in the Federal Estate Tax Valuation of Closely Held
Prepared for Professor Palmiter
Commercial Finance: Valuation
This paper will examine the methodology and techniques
used in valuation of closely held business interests in the
federal estate tax context. As a way of introduction, the
paper begins with a description of the estate taxation
framework.1 Next the paper will examine the treatment of
closely held business assets by the Internal Revenue Code and
Regulations.2 Lastly, a comparison of two estate tax cases
where valuation was disputed are compared and examined.3
The Federal Estate Tax System
The federal estate tax is a wealth transfer tax.
The tax is measured by the amount/value of the property
transferred. It is not a direct tax on the property itself, it
is rather a tax on the act of transferring property.4 Many
taxpayers escape the estate tax, it is imposed only on those
estates whose tax base exceeds $650,000.5 This exemption is
scaled to increase annually to a maximum exemption in 2006 of
The estate tax base consists of the decedent’s
gross estate and the taxable gifts made by the decedent after
1976.7 The gross estate consists of property in which the
decedent had an interest in at the time of his death. This
includes property owned by the decedent at the time of his
death.8 The Internal Revenue Code takes a expansive view of
what constitutes ownership. Included in the gross estate under
“property owned” is life insurance policies, future interests,
and causes of action for wrongful death as well as real estate
and investment property.9 In essence any type of property is
includable in the gross estate if the decedent held a
beneficial ownership in the property.10
A second element of the gross estate includes Also
included are so called “death bed transfers” gifts made by the
decedent in contemplation of death. Designed to combat tax
avoidance, Congress has included in the “gross estate” all
transfers by the decedent which occur within three years of
Because the estate tax is an excise tax on the privilege
of transferring property, only the value of the property that
is transferred is taxed.12 Moreover, the statutory framework
does not contemplate consideration of the destination of the
Valuation Consideration in the Internal Revenue Code and Regulations
The estate tax attaches at the moment of death.
Therefore, the value of assets included in the “gross estate”
is that of the date of the decedent’s death.14 The Internal
Revenue Code also allows for an alternative valuation date.15
Under I.R.C. §2032 an executor can elect to value the all the
assets in the estate six months after the date of death. The
purpose of this alternative valuation date is to protect
estates from sudden declines in market value of the decedent’s
assets.16 Two special rules apply to the election of the
alternative valuation date. First, the alternative valuation
date may only be elected if the election actually produces a
decrease in both the value of the gross estate and the amount
of the estate tax payable.17 Secondly, changed in value during
the six months which are attributable to the “mere lapse of
time” will be disregarded.18 For example, property such as a
patent which has a limited life and inevitably loses value
with the passage of time. For such assets the alternative
valuation election is not available; these assets are valued
as of the date of death.19
The valuation process is critical to the estate tax
process; it is the value of the property determines the tax
rate the estate will be subject to. While the estate tax
statutes are not clear on what “value” means or how it is
determined. The Regulations are somewhat more helpful. The
Regulations equate “value” with “fair market value.” “Fair
market value” is defined as: “the price at which the property
would change hands between a willing buyer and a willing
seller, neither being under any compulsion to buy or to sell
and both having reasonable knowledge of relevant facts.”21
While “fair market value” is seen as the controlling guideline
for valuation, the Regulations also contain special rules
concerning the valuation of specific types of property--among
them: stocks and bonds22, household effects23, life estates and
future interests24 and life insurance contracts.25
Despite the promulgation of regulations detailing how
certain types of property should be valued, very often there
is no obvious way to arrive at a “fair market value” for an
asset. In this context this paper will examine the methodology
used in valuing closely held business interests.
Actively traded business interests represent little
challenge in the valuation context. The “willing seller-
willing buyer” framework actually works in reality to
determine prices every day on financial markets. For example,
an estate with 1000 shares of Microsoft stock will value that
stock at the mean of the highest and lowest quoted selling
prices on the valuation date.26 This is the easy case because
identical property is easily identified and it is routinely
Closely held business interests are vastly more
complicated to value. Because the stock is nontraded using
the willing buyer-willing seller analysis is more
hypothetical. I.R.C. §2031(b)
2031.html mandates that the starting point for valuing
nontraded stocks and securities is by reference to stocks of
similar or comparable businesses that are actively traded.
Because this too is a speculative measure, the Regulations
expand the aspects of a closely held business that warrant the
greatest attention in valuation.
Where stock in a closely held business is being valued,
considerations include: the company’s net worth, prospective
earning power and dividend paying capacity and “other relevant
factors”.27 “Other relevant factors” include:
The good will of the business; the
economic outlook in the particular
industry; the company’s position in
the particular industry and its
management; the degree of control of
the business represented by the block
of stock to be valued; and the values
of securities of corporations engaged
in the same or similar lines of business
which are listed on a stock exchange……
In addition to the relevant factors
described above, consideration shall
also be given to nonoperating assets,
including proceeds of life insurance
policies payable to or for the benefit
of the company, to the extent such
nonoperating assets have not been taken
into account in the determination of net
worth, prospective earning power and
Given the broad array of considerations the Regulations
propose when valuing closely held business interests the Internal
Revenue Service issued Revenue Ruling 59-60 to act as a guide for
the valuation of these assets.29 As a primary matter the Service
recognizes that valuation of closely held business interests is an
inexact science and a case-by-case approach is warranted.
Therefore, there is no single formula for accurate valuation.30
Premiums and Discounts
In addition to the above factors considered in valuation,
there are a number of premiums and discounts that are often applied
to a stock value. A “control premium” may be added to the value of
the stock. A block of stock which represents a controlling interest
in a company has a greater value than the value derived above.31
Similarly, a block of stock which represents a noncontrolling
minority interest may call for a discount in value.32 The rationale
behind the discount is that a buyer in the real world would take
into account this minority interest when determining a price to pay
for the stock.33 Indeed, the Tax Court has recognized that while the
sum of the parts cannot equal more than the whole- that is the
majority block with the control premium and the minority block with
the discount, should not equal more than 100 percent, the sum of the
parts can equal less than 100 percent.34
Even where a block of stock represents a minority interest a
discount is not always warranted. Consideration must be given to
“swing vote” attributes. The value of a minority interest may be
increased where it can be coupled with another minority block to
create control of the business. In this case a “swing vote”
attribute can effectively offset an otherwise allowable minority
The Internal Revenue Service and Courts recognize that often
the willing buyer- willing seller approach can lead to
unrealistically high values, as such a lack of marketability
discount is often applied.36 Reasoning that investors seek out
assets which are easy to sell and which have a ready or existing
market. Accordingly, interests which would be difficult to sell are
given a discount.37 The purpose behind this discount is to equalize
an investment in closely held stock with stock that is publicly
In certain situations, a “key person” discount will be
allowed. The IRS defines a “key person” as an individual whose
contribution to a business is so significant that there is certainty
that future earning levels will be adversely affected by the loss of
the individual.39 The loss of a “key person” can have a depressing
effect on stock values. Such a discount will be applied only when:
1) whether the claimed individual was actually responsible for the
company’s profit levels; and 2) if there is a key person, whether
the individual can be adequately replaced.40
Often, especially with family controlled businesses,
restrictive buy-sell agreements are entered into with regard to the
disposition of stock. Such agreements typically give existing
shareholders, the corporation and or the board of directors the
“right of first refusal” on the sale of securities. Along with this
“right of first refusal” the agreements typically have a fixed price
for the stock or a formula used to derived the selling price. The
idea behind this arrangement is that it replicates what a willing-
buyer would spend—that is, a willing buyer would never pay more than
the restriction price.41 Because Congress sees this arrangement as
inherently suspect, an restrictive agreement will not be given
valuation effect unless:
a)the restriction must be a “bona fide business arrangement.”
b)the restriction must not be a testamentary device designed
to transfer property to the decedent’s family
c)the terms of the restriction must be comparable to the
arrangements that would be entered into in an arms’ length
Real World Examples of Buy-Sell Agreements and Valuation
Given the factors considered by courts in valuation of closely
held businesses, including discounts and premiums the next section
of the paper will examine how and when buy-sell agreements will be
given valuation effect. Two cases have been chosen as examples, both
represent closely held businesses which at the time of valuation
were leaders in their respective industries.
Estate of Lauder
In Estate of Lauder,43 the United States Tax Court refused to
give valuation effect to a restrictive buy-sell agreement of shares
of a closely held corporation. At the time of his death in 1983,
Joseph H. Lauder was the executive chairman of the board of
directors and treasurer of Estee Lauder,
with his wife Estee, after World War II, the company was
incorporated in 1958. ELI created a niche by selling cosmetics and
skin care products exclusively to high-end department and specialty
stores. Sons Ronald and Leonard joined the business in the 1960’s.
The company at the time of the case had three major operating
divisions, Estee Lauder U.S.A, Clinque, and Estee Lauder
International. The Lauders shared the belief that ELI should remain
in the family.45
On May 28, 1974 the Lauders and ELI executed a “Shareholder
Agreement”46 The agreement outlined a right of first refusal to the
ELI or other shareholders if a shareholder intended to sell any
shares. The agreement also covered the death of any shareholder- the
shares would be offered first to ELI and other shareholders. The
Agreement further, outlined the purchase price for the shares as the
“net per share book value of such shares (excluding any value for
all intangible assets, such as goodwill, etc.).”47 The book value
was to be determined by the last audited annual statement of ELI
preceding the date of sale or the date of death. The Agreement also
stipulated that the book value should be reduced by the amount of
any dividends paid subsequent to the last financial statement and
before the stock sale, and adjusted for unrecorded tax refunds or
deficiencies.48 Leonard arrived at the book value formula and did
not consult a professional business appraiser. The Agreement was
amended in 1976, but did not significantly change the agreement.
Again the Lauders did not consult a valuation expert.
At Joseph’s death, his estate sold 6756 shares of ELI common
stock to ELI at $4111 per share. On the estate tax filing the date
of death value of all stock was fixed at $29,050,800 ($4300/share).
The Internal Revenue Service determined that the date of death value
of the stock was $89,517,000 ($13,250/share) and issued a notice of
Expert Valuation Testimony
The Lauders employed two experts in business valuation at the
subsequent trial each were tasked with valuing the stock at the time
of the two shareholder agreements. Shearson Lehman relied on the
comparative market valuation method to value the ELI stock. This
method involves comparing ELI’s financial and operating performance
with that of similar companies whose stock is publicly traded. In
making the comparison to other companies Shearson Lehman used the
Price/Earnings ratio (the current market price per share divided by
earnings per share).49 Shearson Lehman selected several companies
for comparison among them: Avon, Del Laboratories, Faberge, Helene-
Curtis, La Maur, Mary Kay, Noxell and Revlon. Based on the company
comparisons, Shearson Lehman concluded that had ELI been publicly
traded at the time of the agreements, it would have been valued at
multiples of 9 and 9.5 times it most recent earnings. With these
multiples the stock would have traded at $2,025.18 and $2727.15 per
share respectively. These share prices were discounted by 50
percent due to lack of marketability yielding prices per share of
$1,012.59 and $1363.58 as of 1974 and 1976.50
A second expert used by the estate was Dillon, Read. Dillon,
Read provided to the court an opinion as to the proper discount for
lack of marketability. In concluding that the stock would trade on
the public market at a discount of 60 to 70 percent, the expert used
the dividend discount model. This model compared the present value
of a dividend stream normally paid by publicly traded cosmetics
companies with the present value of a dividend stream paid by a
private company (assumed to be 25 to 30 percent). This formula is
thought to represent what level of return is demanded by investors.
Dillon Read took into consideration several factors in reaching its
conclusion: 1) Estee and Leonard are considered “key persons”; 2)
ELI had lower operating margins than its competitors 4) ELI limited
is distribution to high end stores; and 5) ELI was highly leveraged
in comparison to the cosmetics industry as a whole.51
The IRS also employed two experts, Management Planning and
Willamette Management Associates. Management Planning’s valuation
analyst used a comparative valuation method to determine the
multiples to use in valuing the ELI stock. Among the ratios used
were: price to book value, price to latest 4-year weighted average
earnings, price to latest 4-year weighted cash flow, price to latest
year earnings, price to latest year cash flow, price to latest year
dividends, and dividends to latest 4-yar weighted average earnings.
Criteria used to select the companies included the availability of
financial information and those with common stock publicly traded at
at least $5/share.
Dillon, Read concluded that ELI was not dependent on a key
person, company size was not a significant factor and that ELI had a
superior rate of return on equity which offset any negative effect
from its relatively lower profit margins. The public market value
for the ELI common stock was arrived at by “subtracting the value of
ELI preferred stock from the figure representing ELI’s aggregate
equity value.”52 This formula produced stock prices in 1974 of
$4,014 (voting)and $3,823(non-voting); in 1976 $4,661 (voting) and
$4,439 (non-voting). After applying a 25 percent discount for
marketability the share prices were: 1974 $3,000 (voting) and $2,900
(non-voting); in 1976 $3,500 (voting); and $3,300 (non-voting).
The IRS also employed another expert, Willamette Management
Associates. This firm valued the stock using four valuation methods:
the capital market approach, the market data transactional approach,
the adjusted net worth approach and the discounted net cash flow
approach. The figures from each formula produced the value of a
controlling equity interest in ELI. These figures were averaged. To
arrive at a stock value the expert applied a 10 percent discount for
lack of marketability and a 5 percent “key person” discount.
Additionally a 30 percent discount for the descendant’s minority
interest was applied. The resulting values were $2,632 (voting) and
$2,393 (nonvoting) in 1974. In 1976, the expert concluded that the
values would have been $3,261 (voting) and $2,964 (non-voting).
Court’s Treatment of the Valuation Evidence
The Court concluded that the agreements were enforceable
against the decedent during his life and upon his death. Further
the court concluded that a desire to maintain family control of a
business through buy-sell restrictions may serve the bona fide
business purpose required in I.R.C.
The Court went on to note that intrafamily agreements must be
scrutinized carefully to insure the absence of testamentary intent.
The Court concluded that the agreements did serve a legitimate
business purpose but the agreements were testamentary in nature. In
arriving at the conclusion the court focused on the arbitrary nature
of the book value formula and the lack of an independent valuation
or appraisal at the time of the shareholder’s agreements.
As for the valuation method, the court embraced the Sherson
Lehman earnings-based approach. It accepted the comparative
valuation formula with its emphasis on price/earnings ratios of
competitors. However, the Court rejected the multiples of 9 and 9.5.
The court noted that the distribution strategy of marketing
exclusively to high-end department stores was not a negative factor
and that the company was a leader in that portion of the market. The
court reasoned that the price/earning multiples should be 11 and
12.5 for 1974 and 1976 respectively. As a further matter, the court
rejected all of the lack of marketability evidence and concludes
that a 40 percent discount is appropriate.54 The court concludes
that the ELI stock would have sold for $1,485.13 and $2,153.02 in
1974 and 1976 respectively. This is in contrast with the estate’s
values of $614.70 and $1,212.70. The court held that further
proceedings were in order to determine the fair market value of the
stock at the decedent’s death, the case was therefore remanded.
Estate of Hall
Founded in 1910 by Joyce C. Hall, Hallmark Cards was
incorporated in 1923.55 Hall served as the chairman of the board of
the industry leader in greeting cards.56 Hall died in 1982. His
executor filed an estate tax return. The gross estate included
70,083,000 shares of class C common stock and 1,797,000 certificates
of participating interest in a voting trust of Hallmark class B
common stock. The class B stock was valued at $187835/share for a
total of $131,640,403.05. The certificates for the class C common
stock were valued at $reported In addition to various greeting card
lines and gift 98157/share for a total of $3,560,881.29. The
Internal Revenue Service issued a notice of deficiency in the amount
of $201,776,276.84; the IRS determined that the class C common stock
was undervalued by $167,614,006.95and the interests in the class B
stock were also undervalued by $4,507,648.71.57
In addition to greeting cards and gift wrap the company had in
the 1970’s began a course of diversification acquiring a costume
jewelry company, a picture frame manufacturer. There was also a
retail division and a real estate development project in Kansas
City, the Crown Center.58
For Hall keeping Hallmark a private corporation was a top
priority. Stock ownership was limited to the Hall family, Hallmark
employees and charities.59 As of the valuation date Hallmark had
three classes of outstanding stock: class A preferred stock, class B
common stock and class C common stock. Class A preferred stock, a
non-voting stock, was held by the Hallmark Employee Profit Sharing
Plan and participating employees.60 Class B common stock was the
only voting class of common stock. Class C common stock was a non-
voting common stock.
Stock Transfer Restrictions
In 1963, certificates representing all the shares of class B
common stock were deposited in a trust indenture. Beneficial owners
of the class B common stock continued to have all the economic
benefits of stock ownership including the right to receive dividend
payments and the right to vote the shares. The indenture also
restricted who the stock could be transferred to. No shareholder
could transfer stock to a person not deemed a “permitted transferee”
(Hallmark, members of the Hall family) without first being offered
to Hallmark and other class B shareholders.63 The purchase price for
class B stock was set forth in the indenture. The prevailing
adjusted book value would be the purchase price and the agreement
allowed for an installment purchase of the stock.64
In 1974 the decedent and U.S. Trust Company, trustee for the
Hallmark Employee Profit Sharing Plan, entered into an agreement
which mandated that on Hall’s death U.S. Trust would purchase 2/3 of
the decedent’s Hallmark stock.65
Adjusted Book Value
In addition to being the purchase price for stock under the
restrictive agreements, the adjusted book value represented the
value of employee participation in the profit sharing plan.66 The
indenture created the book value formula. Beginning with Hallmark’s
book value per share, an adjustment was made for goodwill. Using an
average 10 percent return on equity as a benchmark, the goodwill
adjustment looked at five year intervals. If the average was above
10 percent a goodwill premium was added; a lower return resulted in
a discount.67 Premiums were added to class B stock because of its
voting status and to Class A stock because of its liquidation and
Expert Valuation Opinions
The Hall estate hired two experts in business valuation to
present evidence as to the value of the stock. First Boston Corp.
valued all classes of Hallmark stock for the estate at the time of
the tax filing, in 1982.69 First Boston as a preliminary matter
identified only one company in the greeting card industry, American
Greetings as a comparable company. Despite the fact that American
Greetings was Hallmark’s chief competitor, the expert felt that a
comparison with only one company would be insufficient. As such he
selected six other companies for comparison, A.T.Cross Co., a
leading manufacturer of writing instruments; Avon Products, the
world’s largest manufacturer of cosmetics; Coca-Cola; Lenox Inc., a
leading producer of china; and Papercraft, a leader in the
manufacture of gift wrap. The expert choose publicly traded
companies who, like Hallmark, were industry leaders. Stock prices
(high and low) for each of the comparable companies were complied
for the years 1973 to 1982.70 The stock prices of the comparable
companies were discounted by 35 percent to produce an approximate
private company stock value.71 The expert concluded that the
Hallmark formula was a “reasonable estimate of the fair market value
of Hallmark stock at the valuation date.”72
Shearson Lehman was also employed by the estate. The expert
(incidentally the same expert who prepared the Lauder estate values
for Shearson Lehman above) also chose to compare Hallmark to other
industry leaders including McDonald’s, Annheuser Busch, IBM and
Coca-Cola. The expert’s rationale was that such companies were
highly regarded in the investment community for management,
financial position and leading market position. In assessing value,
the expert used a price- to-earnings ratio (the current market price
per share divided by earnings per share). Reasoning that the price-
to earnings ratio is typically the figure used by investment bankers
and investors the expert regarded it as the best reflection of the
market’s judgement about future earnings potential.73 In addition to
historical earnings data, the expert considered the state of the
national economy, the greeting card industry and Hallmark’s
respective place within the industry, and also weighed the
possibility of large legal liability for Hallmark (there were
numerous legal claims associated with the collapse of concrete
walkways in the Hyatt Regency in Crown Center, 114 people were
killed and dozens seriously injured74).
The price-to-earnings ration arrived at by Shearson was
adjusted by 20 percent to account for the negative effects of the
Crown Center litigation. The expert arrived at a value of $3.16 per
share for all classes of Hallmark common stock. This value was
discounted by 36 percent for lack of liquidity, to $2.02 per
share.75 The share value was further reduced because of the
restrictions on sale to $1.60 share.76
The IRS employed one expert in business valuation,
Philadelphia Capital Advisors(PCA). The expert used both a market
comparison approach and the income capitalization approach.77
Reasoning that American Greeting Cards was the only publicly
traded company that had a similar product line and served the same
markets, the expert restricted his market comparison to American.
Further the expert presumed that there was a functional relationship
between price-to-earnings ratios and earnings growth. Based on this
“functional relationship” the expert concluded that Hallmark would
hold a “market premium” over American Greeting of not less than 118
percent.78 The expert further applied a control premium and
concluded that based on the market comparison approach the stock
would have a value of $8.05 per share.79
The income capitalization approach measures fair market value
by projecting future cash flow that the asset will generate.80 Here
the PCA expert added noncash depreciation charges Hallmark’s net
income. No adjustments were made for noncash charges for deferred
taxes or estimated cash needed for future capital expenditures.81
Combining an equity discount rate and a debt discount rate, the
expert arrived at a cost of capital discount which was applied to
the projected cash-flow.
Given these figures PCA arrived at a “weighted average
business value” by weighing the market comparison approach by 65
percent; the income capitalization figure by 35 percent.82 As of the
valuation date Hallmark stock was valued at $7.62/share.83
The same formulas were used in a separate analysis by PCA to
calculate the minority share valuation of the Hallmark shares. This
appraisal arrived at a value per share of $4.49. This per share
value was discounted by 5 percent to reflect lack of voting rights
(for the class A and class C stock) and an additional 5 percent
discount was applied to reflect the costs of taking Hallmark
public.84 Arriving at values of$4.27 for minority class C, and 44.49
for class B stock, the PCA expert gave no consideration to the
Court’s Discussion of the Valuation Testimony
As a primary matter, the Court rejected the IRS contention
that the buy-sell agreement was an estate-planning tool, and the
purchase price to set aside the buy-sell agreement did not serve a
bone fide business purpose. Indeed the Court finds that the
agreement was enforceable and binding.86 While the court refused to
hold that the agreement fixed the share price for estate tax
purposes, it did conclude that the fair market value of the stock
could not exceed the adjusted book value.87
While noting that all the experts were qualified, the Court
noted that the nature of valuation was inherently imprecise.88 The
Court criticized the IRS for refusing to allow its expert (PCA) to
consider the impact of the buy-sell agreement. Especially harsh was
the Court’s criticism of PCA’s decision to only use one company,
American Greetings as a comparable company to Hallmark.89
Concluding that a potential investor would never limit his
consideration of a stock purchase to only one alternative, the Court
rejected the IRS argument that as a matter of law the comparison
must be made of companies within the same industry.90
In addition to this fatal flaw in the PCA valuation, the Court
notes that the “functional relationship” between price-to-earnings
ratios and earnings growth, which allowed PCA to arrive at a 118
percent “market premium” was without empirical evidence. Moreover,
the Court takes issue with PCA’s income capitalization valuation.
The Court notes that PCA used an incorrect definition of cash flow.
PCA used a cash-flow definition that included net income plus
depreciation, but did not consider capital expeditures, increases in
working capital or deferred taxes. The court also took issue with
PCA’s use of a weighted average cost of capital, one that combined
equity and debt discount rates, as opposed to using a pure equity
discount rate to arrive at the expected returns for an equity
investor.91 Lastly, the Court finds the marketability discount of 5
percent too low, given that a minority shareholder would not be able
to force Hallmark to “go public”. Here the court finds the estate’s
marketability discounts more appropriate.92
In general approves the valuation techniques of both of the
estate’s experts. The court rejects the discount for the transfer
restriction used by Shearson Lehman. The court concludes that the
valuation by First Boston was reasonable and adopts the expert’s
valuation analysis of the stock.93
Estate of Hall and Estate of Lauder represent two
contemporaneous estate tax valuation cases. The cases bear a number
of similarities: both were of decedent’s who founded and took and
active role in management of industry leading companies, companies,
which were controlled by the decedent’s families, in both cases the
restrictive buy-sell agreements and book value played a key role in
the valuation debate. However, the cases are markedly dissimilar in
The court in Lauder, paid a focused on the testamentary nature of
the buy-sell agreements arising from arbitrary book value formulas
arrived at by the family. This arbitrary formula colored the
court’s perception of the valuation testimony offered by the estate.
The lesson learned from Lauder is the importance of an independent
valuation/appraisal at the time of a restrictive agreement. This
avoids concerns about the agreement being a disguised testamentary
device. Moreover, in Lauder the court was confident in rejecting
valuation testimony concerning price/earnings multiples and arriving
at its own figures.
As a concluding note, Estee Lauder, Inc. did go public in
1992. The company has also acquired a number of cosmetic related
companies and remains an industry leader.
In Estate of Hall, the court focused much less on the
testamentary nature of the restrictive stock agreements. Perhaps
this is due to the fact that the agreement also governed employee
participation in the profit sharing program. The court was well
versed in valuation techniques and was openly critical of the
valuation expert hired by the IRS. Here the lesson is for the IRS,
valuation must the court noted include all relevant considerations.
The Tax Court noted a number of errors in the IRS valuation
analysis. Here the estate was able to avoid a large tax deficiency
judgement because it had consulted with experts in valuation, and
the conclusions of those experts were deemed by the court to be
Hallmark, Inc. remains controlled a closely held corporation.
It is controlled by the Hall family in accordance with the founder’s
See infra notes 4-13.
See infra notes 13-42
See infra notes 42-93.
REGIS W. CAMPFIELD ET AL., TAXATION OF ESTATES, GIFTS AND TRUSTS ¶1049 (20 ed. 1997). See
also , I.R.C. §2001 (1998). http://www.fourmilab.ch/ustax/www/t26-B-11-A-I-2001.html
I.R.C. § 2010 (c)http://uscode.house.gov/uscode-
I.R.C. § 6018(a)(4) )http://uscode.house.gov/uscode-
I.R.C. §2033, http://www.fourmilab.ch/ustax/www/t26-B-11-A-III-2033.html §2034
Treas. Reg. §20.2033-1 (1963). http://frwebgate.access.gpo.gov/cgi-bin/get-
I.R.C. §2035 (1983). http://www.fourmilab.ch/ustax/www/t26-B-11-A-III-2035.html
Estate of Harrison, T.C. Memo 1987-88.
Estate of Chenoweth, 88 T.C. 1577 (1987).
Goodman v. Granger, 243 F. 2d 264 (3d Cir. 1957).
I.R.C. §2032 http://www.fourmilab.ch/ustax/www/t26-B-11-A-III-2032.html
CAMPFIELD, supra note 4 at ¶9013.
I.R.C. §2032 (c) http://www.fourmilab.ch/ustax/www/t26-B-11-A-III-2032.html
I.R.C. §2032 (a)(3) http://www.fourmilab.ch/ustax/www/t26-B-11-A-III-2032.html
Treas. Reg. §20.2032-1(a)(3) (1994).http://frwebgate.access.gpo.gov/cgi-bin/get-
Treas. Reg. §20.2031-1(a) (1965) http://frwebgate.access.gpo.gov/cgi-bin/get-
Treas. Reg. §20.2031-2 (1992). http://frwebgate.access.gpo.gov/cgi-bin/get-
Treas. Reg. §20.2031-6 (1994). http://frwebgate.access.gpo.gov/cgi-bin/get-
Treas. Reg. §20.2031-7(1994). http://frwebgate.access.gpo.gov/cgi-bin/get-
Treas. Reg. §20.2031-8 (1974). http://frwebgate.access.gpo.gov/cgi-bin/get-
Treas. Reg. §20-2031-2(b) (1992). ). http://frwebgate.access.gpo.gov/cgi-bin/get-
Treas. Reg. §20-2031-2(f) (2) (1992). http://frwebgate.access.gpo.gov/cgi-bin/get-
Rev. Rul. 59-60, 1959-1C.B.237.
Id. at §3 ¶1.
Estate of Chenoweth, 88 T.C. 1577 (1987).
Id. See also, Ward v. Commissioner, 87 T.C. 78, 106 (1986).
CAMPFIELD, supra note 4 at ¶11,065.
Estate of Chenoweth, 88 T.C. 1577 (1987).
Tech. Adv. Mem. 9436005 (May 26, 1994). Citing Estate of Bright v. United States, 658 F.2d 999
(5 Cir. 1981).
CAMPFIELD supra note 4 at ¶11,071.
Central Trust Co. v. United States, 305 F. 2d 292 (Ct. Cl. 1962).
Estate of Adams, 79 T.C.M. 938, 958 (1979).
Department of the Treasury, IRS VALUATION TRAINING FOR APPEALS OFFICERS COURSEBOOK, §9-11
Id, at §9-12.
CAMPFIELD, supra note 4, ¶11,091.
I.R.C. §2703(b) http://www.fourmilab.ch/ustax/www/t26-B-14-2703.html
64 T.C.M 1643 (1992).
Id. Citing Estate of Bischoff, 69 T.C. 32 (1977).
Estate of Hall, 92 T.C. 312, 313 (1989).
Id. at 314.
Id at 315.
Id. at 315-6.
Id. at 315.
Id. at 316.
Id. at 317.
Id. at 319.
Id at 320.
Id at 321.
Id at 324.
Id at 325.
Id at 326.
Id. at 328.
Id. at 315.
Id. at 330.
Id. at 331.
Id. at 332.
Id., at 333.
Id. at 334-5.
Id. at 335.
Id. at 338.
Id. at 339.
Id . at 340.
Id. at 341.
Id. at 342.