UNITED STATES TAX COURT

T.C. Memo. 1999-119

UNITED STATES TAX COURT

ESTATE OF ALICE FRIEDLANDER KAUFMAN, DECEASED,

JAMES J. MORRISSEY, ALAN S. BERCUTT AND DIANE FANTL,

CO-EXECUTORS, Petitioners v.

COMMISSIONER OF INTERNAL REVENUE, Respondent

Docket No. 17050-97.

Filed April 6, 1999.

S is a family-owned corporation, and D's estate

(E) includes 46,020 shares of S's class A stock. E's

shares represent 19.86 percent of S's total outstanding

shares and is the largest block of S stock owned by one

person. E reported on its Federal estate tax return

that the fair market value of these shares was $29.77

each on the applicable valuation date. E primarily

based its value on two sales of S stock that took place

approximately 2 months after the valuation date; two

members of D's extended family sold their interests in

S (4.67 and 3.25 percent, respectively) to a third

member without investigating the reasonableness of the

sale price and without negotiation. R determined that

the fair market value of E's stock was $70.79 per

share.

Held: The fair market value of E's stock on the

applicable valuation date was $56.50 per share. The

sales upon which E relies are not indicative of the

value of E's stock; among other things, the sellers

were not knowledgeable of the value of their stock, and

- 2 their stock interests lacked sufficient similarity to

E's interest to serve as a proper measure of value.

David J. Duez, Matthew P. Larvick, James J. Morrissey, and

Kevin J. Feeley, for petitioners.

John Q. Walsh, for respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

LARO, Judge:

Petitioners petitioned the Court to

redetermine a Federal estate tax deficiency of $1,038,257.

Following concessions, we must decide the fair market value of

the subject stock on April 14, 1994.

Respondent determined that

the fair market value was $70.79 per share.

Petitioners argue

that the fair market value was $29.77 per share.

the fair market value was $56.50 per share.

We hold that

Unless otherwise

stated, section references are to the Internal Revenue Code as

applicable herein, and Rule references are to the Tax Court Rules

of Practice and Procedure.

References to decedent are to Alice

Friedlander Kaufman, and references to the estate are to

decedent's estate.

hundredth.

Percentages are rounded to the nearest one-

Monetary amounts are rounded to the nearest penny.

FINDINGS OF FACT

Some of the facts have been stipulated and are so found.

The stipulation of facts and the exhibits submitted therewith are

incorporated herein by this reference.

Decedent died on

October 14, 1993, at the age of 78, while a resident of

- 3 California.

The estate's coexecutors are James J. Morrissey,

Alan S. Bercutt, and Diane Fantl.

When the petition was filed,

Mr. Morrissey resided in New York, and Mr. Bercutt and Ms. Fantl

resided in California.

Seminole Manufacturing Co. (Seminole) was incorporated under

the laws of the State of Oklahoma.

Seminole's equity consists of

two classes of nonpublicly traded common stock.

A) has 213,940 shares outstanding.

17,800 shares outstanding.1

One class (class

The other class (class B) has

None of the class A shares are

subject to a shareholders' agreement, right of first refusal,

option, or other restriction on transfer that would eliminate or

otherwise limit a shareholder's ability to transfer them.

Except

as noted infra, the record does not disclose whether a transfer

of the Class B shares is restricted or whether the attributes of

those shares are different from those of the class A shares.2

Owners of Seminole stock on the applicable valuation date

were as follows:

1

In addition to the total outstanding shares of 231,740,

Seminole has other shares, which it holds as treasury stock.

2

As discussed below, the Class B shares that were held by

an employee of Seminole were required to be redeemed when the

employee severed his employment. We do not understand this fact

to mean that a transfer of the Class B shares was otherwise

restricted. We find nothing in the record that indicates that an

employee could not transfer his shares during his employment.

(Indeed, it appears that one employee/shareholder, James D. High,

transferred 2,600 shares to his wife, Rose M. High.) Of course,

any shares transferred by an employee would be subject to

redemption from the transferee if and when the employee severed

his employment with Seminole.

- 4 -

Shareholder

Class A Shares

Decedent's Estate

A. Max Weitzenhoffer, Jr.

Elizabeth Weitzenhoffer Blass

Clara Weitzenhoffer,

trustee of the Clara

Weitzenhoffer trust

John Gunzler

Jerome K. Altshuler, either

individually or as executor

Edmund M. Hoffman

Decedent and Diane K. Fantl,

trustees under will of

Julia Kaufman

Jacquelyne Weitzenhoffer Branch

Diane K. Fantl

Frederick W. Reeves

Rose M. High

James D. High

Decedent, trustee of the

Josephine Kaufman trust

William J. Threadgill

Class B Shares

Ownership Percentages

A

B

Total

46,020

40,080

35,500

----

21.51

18.73

16.59

----

19.86

17.30

15.32

31,800

9,600

-16,400

14.86

.49

-92.13

13.72

11.22

12,960

10,000

---

6.06

4.67

---

5.59

4.32

7,320

6,960

5,740

2,000

2,600

2,000

---1,400

---

3.42

3.25

2.68

.94

1.22

.94

---7.87

---

3.16

3.00

2.48

1.47

1.12

.86

960

400

213,940

--17,800

.45

.19

100.00

--100.00

.41

.17

100.00

Most of these shareholders were related by blood or by marriage

to the Weitzenhoffer family.

The only shareholders who were not

so related are Messrs. Reeves, Threadgill, and High, and Ms.

High.

Mr. Reeves has been associated with Seminole and its

wholly owned subsidiary, Kazoo, Inc. (Kazoo), for more than 20

years, serving as Kazoo's president, Seminole's vice president,

and a member of both boards.

Mr. Threadgill is Seminole's

secretary, a member of its board, and its longtime legal

counsel.3

Mr. High is an employee of Seminole.

High's wife.

Ms. High is Mr.

The 11 shareholders who were related to the

Weitzenhoffer family are identified in bold print in the

appendix, where we set forth each shareholder's relationship to

the Weitzenhoffer family.

3

In addition to Messrs. Reeves and Threadgill, Seminole's

directors on the applicable valuation date were A. Max

Weitzenhoffer, Elizabeth Weitzenhoffer Blass, and John Gunzler.

- 5 Seminole's sole asset is Kazoo stock.

Seminole, through

Kazoo, manufactures men's and women's uniforms and sells this

apparel wholesale to stores and to industrial launderers which

rent the garments to customers.

Seminole's4 apparel, known as

career apparel, is mainly worn by rental car agents, flight

attendants, hotel employees, and middle management or supervisory

personnel in large companies.

Seminole does not sell retail, and

it does not sell directly to the public.

Of its approximately

4,000 customers, 10 accounted for more than 40 percent of

Seminole's 1993 sales.

Seminole's industry is highly

competitive, and Seminole is the industry's largest seller of

professional uniforms.

Approximately 25 million American workers

wear uniforms daily, and the annual revenues of the uniform

industry total approximately $5 billion.

In the late 1980's, Seminole had a second business:

a pants

operation in Mississippi that sold garments to mass merchandisers

such as Wal-Mart and J.C. Penney.

Seminole sold this operation

in 1991 mainly because the operation was doing poorly.

A. Max

Weitzenhoffer (Max Weitzenhoffer) and John Gunzler transferred

approximately $1 million in cash to Seminole after the sale, and

Seminole has been profitable ever since.

Seminole's net sales were $33,790,382 (after adjustment for

discontinued operations) for 1990, $34,517,026 for 1991,

$42,869,030 for 1992, and $46,710,904 for 1993.

4

we.

Seminole's gross

The parties continually refer to Kazoo as Seminole.

So do

- 6 profit was $8,084,138 (after adjustment for discontinued

operations) for 1990, $8,079,863 for 1991, $9,084,921 for 1992,

and $10,204,757 for 1993.

Seminole's income from operations

before income tax expense was $3,592,509 (after adjustment for

discontinued operations) for 1990, $3,073,465 for 1991,

$2,739,020 for 1992, and $3,852,222 for 1993.

Seminole's income

from operations after income tax expense was $2,272,509 (after

adjustment for discontinued operations) for 1990, $1,923,465 for

1991, $1,801,020 (before the cumulative effect of an accounting

change) for 1992, and $2,570,085 (before the cumulative effect of

an accounting change) for 1993.

Seminole's net income (loss) was

($542,446) (after adjustment for discontinued operations) for

1990, ($5,042,168) for 1991, $1,551,209 for 1992, and $2,570,085

for 1993.

Seminole paid cash dividends of $116,245 in 1992 and

$231,740 in 1993.

In 1991, Seminole budgeted dividends for 1993,

1994, 1995, and 1996 of $240,000, $300,000, $360,000, and

$480,000, respectively.

In 1994, Seminole had two basic channels of distribution,

one in which it sold garments to industrial launderers who in

turn rented the garments to customers of their own, and the other

in which it sold garments to uniform stores for resale.

At that

time, more than one-half of Seminole's business was from its

industrial laundry sales.

In 1994, the industrial laundry

industry began to undergo a radical change in that many of the

businesses in the industry were acquired by or merged with other

- 7 businesses.

This heavy volume of business combinations has

continued to date.

Steven M. Smith is a certified public accountant who

provides accounting, tax, and consulting services to Seminole,

Max Weitzenhoffer, and other clients.5

In 1993, Mr. Smith and

Max Weitzenhoffer decided that Merrill Lynch should appraise the

value of a minority interest in Seminole so that Max

Weitzenhoffer could offer to buy the shares of those shareholders

who were not interested in the company.

Merrill Lynch prepared a

report dated and delivered to Max Weitzenhoffer on July 5, 1994,

which valued shares of Seminole's common stock constituting a

minority interest at $29.77 each as of December 8, 1993.

Merrill

Lynch assumed, among other things, that Seminole had 16

shareholders and that the per-share value of each shareholder's

shares was the same.

Merrill Lynch did not distinguish or

discuss the difference between the class A shares and the class B

shares.

Before receiving Merrill Lynch's report, Max Weitzenhoffer

asked some of Seminole's shareholders if they would sell their

stock at $29.70 per share.

Mr. Smith had advised Max

Weitzenhoffer that purchases through the will of his grandmother,

Irma Rosenthal, would have tax advantages.

On May 12, 1994, Mr.

Hoffman, who was approximately 72 years old, accepted Max

Weitzenhoffer's offer and sold his stock to the Irma Rosenthal

5

In addition to his work for Seminole, Max Weitzenhoffer

produces theater in New York and London.

- 8 Trust for $29.70 per share.

Mr. Hoffman had received his stock

as a gift or inheritance from Mark Weitzenhoffer.

Mr. Hoffman

sold his stock to the trust without investigating the

reasonableness of the sale price, without hiring an appraiser,

and without negotiation.

On June 16, 1994, Ms. Branch, who was approximately 67 years

old, sold her 6,960 shares of Seminole stock to Irma Rosenthal's

estate for $29.70 per share.

these shares.

Ms. Branch had inherited all of

Ms. Branch sold her stock after writing Max

Weitzenhoffer complaining that she never received Seminole's

annual report and that she never knew about its operation.

Ms. Branch regularly complained to Max Weitzenhoffer that she was

not kept abreast of Seminole's business.

He then wrote her

offering to buy her shares for $29.70 each.

He represented in

the letter that Merrill Lynch had appraised the stock at that

price, that he had offered the same price to Mr. Hoffman, and

that Mr. Hoffman had accepted.

Ms. Branch sold her stock without

having it appraised, without investigating its worth, and without

negotiation.

She had no documentary information except for the

letter from Max Weitzenhoffer.

A Federal estate tax return was filed for the estate on

July 14, 1994, electing and using the alternate valuation date of

April 14, 1994.

The return valued the estate's 46,020 class A

shares of Seminole at $29.77 per share, which, the return stated,

was also their value on the date of death.

The return stated:

- 9 VALUATION OF THE SEMINOLE MANUFACTURING COMPANY WAS

ESTABLISHED BY MERRILL LYNCH BUSINESS ADVISORY SERVICES

AT $ 29.77. IN ADDITION, THERE WERE TWO ARMS-LENGTH

SALES IN WHICH MAX WEITZENHOFFER PURCHASED 10,000

SHARES FROM EDMOND M HOFFMAN AND 6,960 SHARES FROM

JACQULINE [sic] BRANCH. THE TRANSACTION PRICE IN BOTH

INSTANCES WAS $ 29.77.

The notice of deficiency reflects respondent's determination that

the estate's shares were worth $70.79 each.

Seminole's headquarters are in Kalamazoo, Michigan.

Seminole owns the 115,000-square-foot manufacturing/distribution

facility in which its operations are located and an adjoining

20-acre parcel of land that is not needed for operations or

expansion.

Representatives of Merrill Lynch discussed the value

of the adjoining land with Seminole's management when it prepared

its appraisal report, and, for purposes of the report, Merrill

Lynch assumed that the land was worth $10,000 an acre.

Seminole has always been a family business, and it is

obligated to redeem the stock held by shareholder employees upon

termination of their employment.

The record does not disclose

the price at which these shares must be redeemed or other terms

of this redemption obligation.

The record does not disclose

which shareholders are employees, with the exception of Messrs.

Reeves, Gunzler, Threadgill, and High.

approximately 150 employees.

Seminole has

Approximately 25 of them are

salaried administrative personnel, 75 are warehouse personnel,

and approximately 50 work in Seminole's in-house manufacturing

division.

- 10 As of the beginning of the second quarter of 1994, the U.S.

economy had a largely positive outlook.

It had enjoyed 12

straight quarters of economic growth and was experiencing some of

the lowest interest and inflation rates in more than two decades.

As of the alternate valuation date, market growth for the uniform

industry was anticipated; the career apparel sector of the

uniform industry was growing rapidly, as companies learned the

benefits of easily identifiable employees and advertising created

by the professional image.

Seminole budgeted approximately $1.5 million to be spent in

its 1994 fiscal year on expansion and a new computer system.

OPINION

We must determine the fair market value of the estate's

Seminole stock on the applicable valuation date.

Fair market

value is a factual determination, and the trier of fact must

weigh all relevant evidence of value and draw appropriate

inferences.

See Commissioner v. Scottish Am. Inv. Co., 323 U.S.

119, 123-125 (1944); Helvering v. National Grocery Co., 304 U.S.

282, 294 (1938); Symington v. Commissioner, 87 T.C. 892, 896

(1986); Zmuda v. Commissioner, 79 T.C. 714, 726 (1982), affd.

731 F.2d 1417 (9th Cir. 1984).

Fair market value is measured on

the applicable valuation date, which, in this case, is 6 months

after the day decedent died.

See sec. 2032(a); Estate of Proios

v. Commissioner, T.C. Memo. 1994-442; see also Pabst Brewing Co.

v. Commissioner, T.C. Memo. 1996-506.

When the Commissioner

determines fair market value, as is the case at hand, taxpayers

- 11 generally bear the burden of proving this value wrong.

See Rule

142(a); Welch v. Helvering, 290 U.S. 111, 115 (1933); Leonard

Pipeline Contractors, Ltd. v. Commissioner, 142 F.3d 1133, 1136

(9th Cir. 1998), revg. on another issue and remanding T.C. Memo.

1996-316; Estate of Jung v. Commissioner, 101 T.C. 412, 423

(1993); Estate of Gilford v. Commissioner, 88 T.C. 38, 51 (1987).

To meet this burden, the record must contain enough evidence to

support a finding contrary to the Commissioner's determination

(so-called burden of coming forward), and taxpayers must

demonstrate the merits of their claim by at least a preponderance

of the evidence (so-called burden of persuasion).

See Estate of

Gilford v. Commissioner, supra at 51; see also Fed. R. Evid. 301.

If taxpayers such as petitioners fail either burden, the

Commissioner will prevail.

See Estate of Gilford v.

Commissioner, supra at 51; see also Rockwell v. Commissioner,

512 F.2d 882, 885 (9th Cir. 1975), affg. T.C. Memo. 1972-133;

American Pipe & Steel Corp. v. Commissioner, 243 F.2d 125, 126

(9th Cir. 1957), affg. 25 T.C. 351 (1955).

An arm's-length sale of property close to a valuation date

is indicative of its fair market value.

See Ward v.

Commissioner, 87 T.C. 78, 101 (1986); Estate of Andrews v.

Commissioner, 79 T.C. 938, 940 (1982); Duncan Indus., Inc. v.

Commissioner, 73 T.C. 266, 276 (1979).

If actual arm's-length

sales are not available, fair market value represents the price

that a hypothetical willing buyer would pay a hypothetical

willing seller, both persons having reasonable knowledge of all

- 12 relevant facts and neither person compelled to buy or to sell.

See United States v. Cartwright, 411 U.S. 546, 551 (1973); Snyder

v. Commissioner, 93 T.C. 529, 539 (1989); Estate of Hall v.

Commissioner, 92 T.C. 312, 335 (1989); see also Gillespie v.

United States, 23 F.3d 36 (2d Cir. 1994); Collins v.

Commissioner, 3 F.3d 625, 633 (2d Cir. 1993), affg. T.C. Memo.

1992-478; sec. 20.2031-1(b), Estate Tax Regs.

The views of both

hypothetical persons must be taken into account, and the

characteristics of each hypothetical person may differ from the

personal characteristics of the actual seller or a particular

buyer.

See Estate of Bright v. United States, 658 F.2d 999,

1005-1006 (5th Cir. 1981); Kolom v. Commissioner, 644 F.2d 1282,

1288 (9th Cir. 1981), affg. 71 T.C. 235 (1978); Estate of

Newhouse v. Commissioner, 94 T.C. 193, 218 (1990).

Focusing too

much on the view of one hypothetical person, to the neglect of

the view of the other, is contrary to a determination of fair

market value.

See, e.g., Pabst Brewing Co. v. Commissioner,

supra; Estate of Scanlan v. Commissioner, T.C. Memo. 1996-331,

affd. without published opinion 116 F.3d 1476 (5th Cir. 1997);

Estate of Cloutier v. Commissioner, T.C. Memo. 1996-49.

The

hypothetical willing buyer and the hypothetical willing seller

both aim to maximize their profit from the hypothetical sale of

the property.

See Estate of Watts v. Commissioner, 823 F.2d 483,

486 (11th Cir. 1987), affg. T.C. Memo. 1985-595; Estate of

Simplot v. Commissioner, 112 T.C.

(1999).

- 13 Petitioners point the Court to the sales by Mr. Hoffman and

Ms. Branch and argue that these sales establish that the pershare value of the estate's stock equaled the value at which

these sales were consummated; i.e., $29.70 per share.

Petitioners vehemently argue that these sales are the most

accurate measure of value because, petitioners state, both

sellers were knowledgeable persons who were under no compulsion

to sell.

We disagree with petitioners that either sale is indicative

of the value of the estate's stock.

Commissioner, supra at 278.

See Duncan Indus., Inc. v.

The estate's holdings were the

largest single ownership of Seminole stock by one person, and the

isolated sales relied upon by petitioners, which constituted

3.25- and 4.67-percent interests, are not sufficiently similar to

the estate's much larger 21.51-percent interest to make their

sale price representative of the value of the estate's stock.

Nor was either sale made by a person who was reasonably informed

on the date of sale as to the relevant facts surrounding the

value of the underlying property.

Neither Mr. Hoffman nor Ms.

Branch performed any meaningful financial review as to the value

of his or her stock.

Petitioners point the Court to the

affidavits of Mr. Hoffman and Ms. Branch, both of which were

prepared more than 2 years after the date on which Ms. Branch

sold her stock.

In those affidavits, she and Mr. Hoffman assert

that they reviewed the Merrill Lynch report before selling their

stock.

We find these assertions incredible.

Merrill Lynch had

- 14 not yet finished its report as of June 16, 1994.

As discussed

infra, the sellers also testified in this Court that they did not

see the report before selling their stock.

That testimony speaks loudly to the fact that they were not

knowledgeable sellers who aimed to realize the fair market value

of their stock.

Ms. Branch testified:

Q Would it be fair to say that at the time

of your sale of your Seminole stock you did

not know its precise value?

A

No.

I mean--

Q It would be fair to say that you didn't

know its value?

A No, I had no idea what the value was.

It's a family business. How are you going to

know what the value of a family business is?

*

*

*

*

*

*

*

Q Ms. Branch, at the time of the sale of

your Seminole stock, do you have any

recollection as to whether the--as to whether

you had a valuation report for Seminole--for

your Seminole stock?

A I did not get the Merrill Lynch report

that's mentioned in here, no.

Q

So you never had the Merrill Lynch report.

A No, but the letter quoted Merrill Lynch as

having appraised the stock at that price.

THE COURT:

about?

Which letter are you talking

THE WITNESS:

to buy my shares.

*

*

*

The one from Max offering

*

*

*

*

- 15 THE COURT: And how did you determine

the correct price for you to sell the stock

at?

THE WITNESS: Well, he made an offer of

so much--of X, you know, dollars.

THE COURT:

say he made--

Who's he?

Who's he?

You

THE WITNESS: Max offered me $206,000,

and it seemed like a pretty good--you know, a

nice sum of money. So I figured, okay, take

it and get out of Seminole * * *

THE COURT: Other than the fact that it

seemed like a nice sum of money, did you make

any other consideration or determination as

to whether that was a fair price?

THE WITNESS: No. I just took his word

that he said Merrill Lynch had appraised it

at that.

Mr. Hoffman testified similarly:

Q Was there a time when you came to own

stock of the Seminole Manufacturing Company?

A Yes, and that was during the lifetime

of Mark Weitzenhoffer. And I don't know the

exact date, but probably during the 1960s.

Q Approximately how many shares did you

acquire?

A

10,000 shares.

Q

Do you recall how you acquired those?

A I just think that Mark Weitzenhoffer gave

them to me.

Q

So they were a gift?

A

Yes.

*

*

*

*

*

*

*

- 16 Q Was there a time in which you came to

sell the shares you owned in Seminole

Manufacturing Company?

A

Yes.

Q Do you remember approximately when

that was?

A

1974, I think.

Q.

'74 or '94?

A

'94, I mean.

*

*

And I think--

Excuse me.

*

*

*

*

*

Q And would you please describe for us

the circumstances--or how you came--how that

transaction came about?

A Well, Mark had--when Mark was alive-Mark Weitzenhoffer was alive--and he passed

away in 1970--he gave stock in--I think out

of his estate, and that's where I got my

shares.

And finally I decided one day that there

wasn't anything for me to do with the

Seminole Manufacturing Company, which Mark

had headed. And so I tried to find a buyer,

and I did find a buyer that bought it at $297

[$29.70] a share, or a total of $297,000.

Q Do you recall what steps you took to

find a buyer?

A Just asked somebody in the company if

they would acquire it.

*

*

*

*

*

*

*

Q Do you recall what, if any,

investigation you undertook at the time as to

the reasonableness of the sale price?

A I didn't--I thought it was

reasonable, and I decided that I could use

the money to do something else, and I went

ahead and sold it.

- 17 *

*

*

*

*

*

*

THE COURT: Did you rely upon the

[Merrill Lynch] appraisal in order to decide

whether or not the price that you were to

receive was fair?

THE WITNESS: I didn't do that. I--my

point there was that I was trying to sell the

Seminole stock and I thought I had a price

that I would accept.

Having concluded that the record is devoid of an arm'slength sale upon which we may measure the value of the estate's

stock, we proceed to determine the stock's value using a two-step

process established by this Court's jurisprudence.

See

Mandelbaum v. Commissioner, T.C. Memo. 1995-255, affd. without

published opinion 91 F.3d 124 (3d Cir. 1996), and the cases cited

therein.

First, we must estimate the value of the stock as if it

were publicly traded.

We do so, if possible, by reference to the

value of the listed stock of like corporations engaged in the

same or a similar line of business.

See sec. 2031(b); Estate of

Hall v. Commissioner, 92 T.C. at 336; Mandelbaum v. Commissioner,

supra.

Like corporations are determined by reference to the

subject corporation's age, business, product line, and gross

receipts.

See Estate of Hall v. Commissioner, supra at 336;

Mandelbaum v. Commissioner, supra.

We must also estimate the

stock's value indirectly by reference to the subject

corporation's net worth, its prospective earning power, its

dividend-earning capacity, its goodwill, its management, its

position in the industry, the economic outlook for its industry,

the degree of control represented by the block of its stock to be

- 18 valued, and the amount and type of its nonoperating assets if not

considered elsewhere.

See Estate of Hall v. Commissioner, supra

at 336; Estate of Andrews v. Commissioner, 79 T.C. at 940; Estate

of Cloutier v. Commissioner, T.C. Memo. 1996-49; sec. 20.20312(f), Estate Tax Regs.; Mandelbaum v. Commissioner, supra.

Second, we must determine by how much, if any, our estimated

publicly traded value should be discounted to reflect the fact

that the stock is unlisted and not easily marketable.

See

Mandelbaum v. Commissioner, supra; see also Estate of Cloutier v.

Commissioner, supra (marketability discount generally represents

the additional price that an unlisted share would command if it

were freely traded).

Factors to consider to determine the

applicability and amount of a marketability discount include:

(1) The value of the subject corporation's privately traded

securities vis-a-vis its publicly traded securities (or, if the

subject corporation does not have stock that is traded both

publicly and privately, the cost of a similar corporation's

public and private stock); (2) an analysis of the subject

corporation's financial statements; (3) the corporation's

dividend-paying capacity, its history of paying dividends, and

the amount of its prior dividends; (4) the nature of the

corporation, its history, its position in the industry, and its

economic outlook; (5) the corporation's management; (6) the

degree of control transferred with the block of stock to be

valued; (7) any restriction on the transferability of the

corporation's stock; (8) the period of time for which an investor

- 19 must hold the subject stock to realize a sufficient profit;

(9) the corporation's redemption policy; and (10) the cost of

effecting a public offering of the stock to be valued; e.g.,

legal, accounting, and underwriting fees.

Mandelbaum v.

Commissioner, supra.

Each party called a witness whom they and he asserted was an

expert on valuation and would help the Court determine the fair

market value of the estate's stock.

Petitioners called Bret

Tack, accredited senior appraiser, a principal of the firm of

Houlihan Valuation Advisors.

Mr. Tack graduated from college in

1985, and he has continued to work in the valuation field ever

since.

We recognized Mr. Tack as an expert on business

valuation, and we accepted his reports into evidence.

His

initial report analyzed the fair market value of the estate's

stock as of April 14, 1994, concluding that the estate's stock

interest was a minority, noncontrolling interest that had a fair

market value on that date of $30.85 per share.

He reached his

conclusion after analyzing two of the three relevant valuation

methods; namely, the market comparative method and the discounted

cash-flow method.

He did not analyze the third method; i.e., the

net asset value method.

His supplemental report discussed the

marketability discount in the setting of the Mandelbaum factors,

concluding that the 35-percent discount factored into his $30.85

per-share value was consistent with a Mandelbaum analysis.

Respondent called William K. Fowler, A.M., a financial

analyst employed by the Internal Revenue Service.

Mr. Fowler has

- 20 performed more than 700 appraisals since he entered the valuation

field in 1986, and he is an accredited member of the American

Society of Appraisers and the Institute of Business Appraisers.

We recognized Mr. Fowler as an expert on business valuation, but

we expressed our concern that he might be biased because he was a

full-time employee of the Commissioner.

Mr. Fowler's initial

report ascertained the value of Seminole stock as of December 8,

1993, the date for which the Merrill Lynch report had set forth a

value.

We did not admit this report into evidence.

We held it

was irrelevant because the December 8, 1993, valuation date set

forth therein was too far removed from the applicable April 14,

1994, valuation date.

We did admit into evidence his

supplemental report, limiting its admissibility to a rebuttal of

Mr. Tack's supplemental report.

Mr. Fowler's supplemental report

analyzed the marketability discount in the context of the

Mandelbaum factors, stating that an analysis of those factors

favored a marketability discount of 15 percent.

We have wide discretion when it comes to accepting expert

testimony.

Sometimes, an expert will help us decide a case.

See, e.g., Booth v. Commissioner, 108 T.C. 524, 573 (1997); Trans

City Life Ins. Co. v. Commissioner, 106 T.C. 274, 302 (1996); see

also M.I.C. Ltd. v. Commissioner, T.C. Memo. 1997-96; Proios v.

Commissioner, T.C. Memo. 1994-442.

not.

Other times, he or she will

See, e.g., Estate of Scanlan v. Commissioner, T.C. Memo.

1996-331; Mandelbaum v. Commissioner, supra.

We weigh an

expert's testimony in light of his or her qualifications and with

- 21 proper regard to all other credible evidence in the record.

See

Ebben v. Commissioner, 783 F.2d 906, 909 (9th Cir. 1986), affg.

in part and revg. in part on another issue T.C. Memo. 1983-200;

Estate of Christ v. Commissioner, 480 F.2d 171, 174 (9th Cir.

1973), affg. 54 T.C. 493 (1970).

We may accept or reject an

expert's opinion in toto, or we may pick and choose the portions

of the opinion which we choose to adopt.

See Helvering v.

National Grocery Co., 304 U.S. at 294-295; Silverman v.

Commissioner, 538 F.2d 927, 933 (2d Cir. 1976), affg. T.C. Memo.

1974-285; Parker v. Commissioner, 86 T.C. 547, 562 (1986); see

also Pabst Brewing Co. v. Commissioner, T.C. Memo. 1996-506.

The mere fact that the position of one party may be unsupported

by expert testimony does not necessarily mean that the other

party's position that is so supported will prevail.

See Estate

of Scanlan v. Commissioner, supra.

Mr. Tack's reports do not persuade us that the value of the

estate's stock was the amount stated therein.

He relied

repeatedly on the unverified representations of Seminole's

management, and we are unable to verify the accuracy or

completeness of those representations.

He also relied on faulty

assumptions to arrive at his value, neglected to analyze key

indicia of value (including Seminole's certificate of

incorporation and bylaws), and assumed erroneously that the sales

by Mr. Hoffman and Ms. Branch were at arm's length.

Mr. Tack

took into account the price at which Mr. Hoffman and Ms. Branch

- 22 sold their shares to reach his conclusion of value.6

Mr. Tack

applied his primary valuation method, i.e., the discounted cashflow method, in a manner that is irreconcilable with our

understanding of that method.

See Estate of Jung v.

Commissioner, 101 T.C. at 424 n.6.

We proceed to discuss in more detail some of the problems we

have with his reports.

First, with respect to his analysis of

like public corporations engaged in the same or a similar line of

business, we do not find enough information on these corporations

to decide whether they are sufficiently similar to Seminole to

permit a proper valuation analysis, or whether another

corporation is better suited for this analysis.

He tells us in

his initial report that several hundred companies in the business

of manufacturing uniforms have revenues under $10 million, that

approximately 30 such companies have revenues between $30 million

and $100 million, and that a few such companies have revenues in

excess of $100 million.

Yet, he uses as his similar companies

for Seminole, a company the revenues of which were approximately

$47 million in 1993, six public corporations the revenues of

which for their taxable years ended on or near December 31, 1993,

ranged from a low of $130.5 million to a high of $505.7 million.

6

Upon redirect examination, Mr. Tack testified that he did

not take these sales into account. This testimony, however, is

contradicted by his initial report, which states specifically

that he did consider these sales. That report states: "These

transactions [the sales by Mr. Hoffman and Ms. Branch] were

consummated at the Merrill Lynch appraised value and have been

considered in our analysis."

- 23 He has not explained adequately why he chose as his similar

companies six corporations all of whose revenues more than

doubled the revenues of Seminole.

He also fails to explain why

he did not consider RedKap, a corporation that he tells us is a

subsidiary of a publicly traded company and the main competitor

to Seminole.

Nor has Mr. Tack adequately explained how he concluded that

the industry of his similar corporations was the same as

Seminole's industry.

He could have, for example, referenced the

standard industry code (or codes) that is (or are) applicable to

Seminole and his similar corporations.

He did not.

Corporations

which do business in a particular industry are generally

classified under the same industry code, and experts in valuation

cases typically refer to the standard industry code to verify

that the industry of the public corporations which they choose as

similar to a corporation before us is the same.

Although Mr.

Tack states in his initial report that he selected as his similar

corporations those public corporations that are "most similar to

the Company [Seminole] from an investment standpoint", a phrase

of uncertain meaning, we are not persuaded that his proffered

corporations are similar to Seminole as to age, business, product

line, and gross receipts.

A proper valuation report must contain

enough data on each similar corporation to allow the Court to

make an informed, independent decision as to whether the

corporations are sufficiently similar to the subject corporation

to perform a proper valuation analysis.

The mere fact that a

- 24 public corporation may be similar to the subject corporation in

some regards does not mean that it is a good indicium of the

latter's value.

Second, Mr. Tack did not analyze all three valuation

methods.

While he recognized all three methods and the fact that

all three methods enter into a determination of fair market

value, he failed to ascertain a value under the net asset method.

He noted the fact that Seminole invested significantly in

tangible assets but concluded, without adequate explanation, that

"an investor would evaluate Seminole based primarily upon the

aggregate earnings and cash-flow generating capability of the

Company's combined assets, rather than on the basis of individual

asset values."

Valuation experts must thoroughly analyze all

applicable methods of valuation, and they may not simply assert

without sufficient explanation that they have concluded that a

particular method is irrelevant.7

That Mr. Tack failed to

perform a net asset analysis is not unremarkable, seeing that he

reviewed nothing that would have enlightened him on the fair

market value of Seminole's assets, including what we imagine is a

large dollar amount of goodwill that has attached to Seminole's

prestigious name over its more than 60 years of operation.

7

If

Upon redirect examination, Mr. Tack attempted to

rationalize his failure to analyze the net asset value method by

stating boldly that: (1) Seminole is worth more as a going

concern on account of its earnings and (2) one cannot apply the

net asset method to ascertain the value of a minority interest.

We find these statements unpersuasive as reasons for not

analyzing Seminole's net asset value.

- 25 the fair market value of Seminole's net assets on the applicable

valuation date were greater than their value as integral parts of

Seminole's business, a hypothetical buyer would consider buying

the estate's shares at a price that hinged on Seminole's net

asset value.

Given the fact that Seminole owned some highly

valuable assets, we would like to have seen a net asset value

analysis.

Third, Mr. Tack assumed that Max Weitzenhoffer owned the

largest block of Seminole stock on the valuation date and that

the per-share value of the estate's shares equaled the per-share

value of all other shares.

assumptions.

We disagree with both of these

For starters, the parties stipulated and we have

found as a fact that the estate owned the largest block of

Seminole stock; i.e., Max Weitzenhoffer and the estate

respectively owned 17.30 and 19.86 percent of Seminole's

outstanding stock.

Although Mr. Smith testified that he and Max

Weitzenhoffer considered Max the owner of the shares of his

mother, Clara, because she was very old and Max was an only

child, we decline to do likewise.

It is indisputable that

Clara's shares were owned by her, and it is inappropriate to

attribute her shares to him.

In addition to the well-settled

rule that stock is valued without the use of family attribution,

see Propstra v. United States, 680 F.2d 1248 (9th Cir. 1982);

Estate of Bright v. United States, 658 F.2d 999 (5th Cir. 1981);

Estate of Mellinger v. Commissioner, 112 T.C. 26 (1999); Estate

of Andrews v. Commissioner, 79 T.C. at 953, Mr. Smith testified

- 26 adamantly that Clara made her own decisions and that her advisers

were independent of Max and his advisers.8

While Mr. Smith also

testified cursorily that Max voted Clara's shares by proxy, we

give this testimony no weight.

But for the testimony of a person

who is neither a director nor shareholder of Seminole to the

effect that Max voted Clara's shares by proxy, we find nothing in

the record to support a finding that Max held a proxy to vote

Clara's shares.

Not to mention that even if he had voted her

shares by proxy on previous occasions, proxies are generally

revocable and of limited duration so as to deprive the holder of

any control over the underlying shares.

See, e.g., Okla. Stat.

Ann. tit. 18, sec. 1057 (West 1986).

Nor do we agree with Mr. Tack that each share of the

estate's stock necessarily equaled the per-share value of the

stock of any other shareholder.

As we understand Mr. Tack's

analysis, shares of stock have one of two values.

They have one

value, Mr. Tack states, if they represent a controlling interest

in that the shareholder has the "ability to change corporate

bylaws, determine dividend policies, redeploy corporate assets,

change the company's capital structure, effect a sale or other

change in the company's ownership structure, make personnel

changes, and otherwise influence the operations and financial

structure of the company."

8

They have a second value, Mr. Tack

We also are unpersuaded that Clara Weitzenhoffer had any

obligation as of the applicable valuation date to leave her

shares to her son Max.

- 27 continues, if they represent any other interest, or, as he puts

it, they represent a noncontrolling interest.

While we agree with Mr. Tack that the type of controlling

interest to which he refers is usually worth more than that of

another interest in the same company, we disagree with him that

corporate stock may be pigeonholed into one of two values.

The

element of control is not as cut and dried as Mr. Tack would have

it seem.

Although the per-share value of a block of stock that

guarantees the holder that he or she can name all board directors

is usually greater than that of a block of stock that carries

with it the ability to name no directors, the per-share value of

the latter block may not necessarily be the same as that of a

block that carries with it the right to name one but not all

directors.

Nor is the per-share value of the one-director block

necessarily the same as a block that carries with it the right to

name two but not all directors.

The long and short of stock

valuation is that the unique facts of each case dictate the value

that attaches to a block of stock, and the per-share value of one

block may differ from the per-share value of another block even

when neither block represents a majority interest in the

corporation.

An important factor to consider in determining

whether extra value inheres in one minority interest vis-a-vis

another is the extent to which the holder of the minority

interest has the ability, by virtue of his or her ownership

interest in the company, to influence the company's practices or

- 28 policies.9

See generally Pratt et al., Valuing A Business:

The

Analysis and Appraisal of Closely Held Companies 44 (3d ed.

1996), where the authors state:

The distribution of ownership can affect the value

of a particular business interest. If each of three

shareholders or partners owns a one-third interest, no

one has complete control. However, no one is in a

relatively inferior position unless only two of the

three have close ties with each other. In this

situation, the analyst could recognize that the size of

the discount from pro rata value for each equal

interest normally will be less than that for a minority

interest that has no control whatsoever.

Here, an owner of the estate's shares, although not an owner

of a majority interest in Seminole, has the ability to exert

influence over Seminole's operation, although not necessarily

control it, by virtue of the fact that he or she is the largest

single owner of Seminole stock.

We find that an owner of the

estate's stock has the right to name at least one of Seminole's

five directors.10

The owner need only vote 38,624 of his or her

9

We do not depart from firmly established law that a

minority interest in a business is valued by taking into account

a minority interest discount. See, e.g., Estate of Bright v.

United States, 658 F.2d 999 (5th Cir. 1981); Estate of Newhouse

v. Commissioner, 94 T.C. 193, 249 (1990); Ward v. Commissioner,

87 T.C. 78, 106 (1986); Estate of Andrews v. Commissioner,

79 T.C. 938, 953 (1982). We simply hold that the per-share value

of the estate's shares, as the largest block of Seminole stock,

is not necessarily the same as the value of any other Seminole

share.

10

In fact, such an owner could end up electing two or more

board members. The record indicates that Seminole did not inform

all of its shareholders about its operation, including the time

and place of annual meetings. Thus, all of Seminole's

shareholders did not necessarily attend its annual meetings, the

result being that the total shares voted thereat may have been

fewer than the outstanding voting shares.

- 29 shares to elect a designate to the board.11

Whereas Mr. Tack

stressed the fact that the subject shares lacked current

representation on the board in reaching his conclusion that the

shares' per-share value was the same as that of any other share,

we attach less weight to this fact.

The mere fact that none of

the executors of the estate was a member of the board on the

applicable valuation date does not mean that a holder of the

estate's shares lacked the ability to gain representation on the

board had he or she wanted to.

It is of course understandable

that decedent was not a member of the board when she died, seeing

that she was elderly and most likely not desirous or capable of

sitting on the board.12

Fourth, Mr. Tack ignored the value that inured in the

estate's shares on account of the fact that Seminole was a

family-owned business that was intended by the shareholders to be

kept in the family.

Most of Seminole's shareholders were related

to the Weitzenhoffer family by blood or by marriage, and they

11

Because the record does not contain Seminole's bylaws or

certificate of incorporation, we are left to assume for purposes

of this calculation that all shares of Seminole stock carry one

vote and that all directors are elected at the same time.

12

Petitioners ask the Court to find as a fact that Max

Weitzenhoffer, Elizabeth Weitzenhoffer Blass, and John Gunzler

voted together in a concerted effort to control the affairs of

Seminole. We decline to do so. Although Messrs. Reeves and

Smith did testify that they believed that Max Weitzenhoffer,

Elizabeth Weitzenhoffer Blass, and John Gunzler tended to vote

similarly at board meetings, this hardly supports a finding that

these three did so pursuant to some type of voting agreement.

That the three may have voted similarly in the past may simply

mean that they had a similar mind set or philosophy on the

matters before them at the time.

- 30 went to great lengths to assure that the shares held by an

outsider could not be transferred to another outsider.

Every

shareholder who was outside the extended Weitzenhoffer family was

a Seminole employee (or spouse thereof in the case of Ms. High),

whose shares had to be redeemed when the shareholder retired.

It

is not unreasonable under the facts herein to conclude that a

hypothetical buyer of the estate's shares would contemplate that

a member of the Weitzenhoffer family, or Seminole itself, would

pay a greater price for those shares as long as they were owned

by a nonfamily member who was not an employee.

A closely held

family corporation such as Seminole is typically managed with

little formality and with little concern for the respective

ownership interests of family member shareholders.

Adding a

nonfamily shareholder minus conditions under which his or her

shares may be recalled can cause havoc to the business'

harmonious operation.

The nonfamily shareholder, for example,

may demand a return on his or her investment that the family

member shareholders are unwilling to give, may otherwise create

an unpleasant and unrewarding working environment, or may strive

to acquire a majority of the outstanding shares.

See O'Neal &

Thompson, O'Neal's Close Corporations sec. 7.02 (3d ed. 1994).

nonfamily shareholder also may continually second-guess the

actions of a family shareholder, director, or officer, or group

thereof, as unlawful attempts to usurp the rights of a minority

shareholder in favor of the family.

See Pepper v. Litton,

308 U.S. 295, 306 (1939); Southern Pac. Co. v. Bogert, 250 U.S.

A

- 31 483, 492 (1919); see also Zahn v. Transamerica Corp., 162 F.2d

36, 42 (3d Cir. 1947) (discusses fiduciary duty generally owed by

those in control of a corporation); Warren v. Century

Bankcorporation, Inc., 741 P.2d 846, 849 (Okla. 1987), and the

cases cited therein (Oklahoma recognizes the applicability of

Pepper v. Litton, supra, in its jurisdiction).

Litigation, and

the vast expense thereof, may ensue whenever disgruntled minority

shareholders believe that they have been wronged by a group of

shareholders or officers who purportedly control the corporation.

In contrast to years past, minority shareholder complainants

today are real, omnipresent, and numerous.

As recognized by

Professors O'Neal and Thompson in their treatise on minority

shareholder litigation:

Most American lawyers do not realize the

tremendous amount of litigation in this country arising

out of shareholder disputes. Since the publication of

the first edition of this treatise, the volume of

litigation grounded on minority shareholder

oppression--actual, fancied, or fabricated--has grown

enormously, and the flood of litigation shows no sign

of abating. The increase in litigation has been

pronounced in both federal and state courts * * *.

Also worthy of note is that in the last four or five

years there has been a substantial increase in the

number of suits minority shareholders have brought for

involuntary dissolution of their corporation or to

force majority shareholders to purchase their shares.

[1 O'Neal et al., O'Neal's Oppression of Minority

Shareholders v (2d ed. 1997).13]

13

Were the family forced to buy the estate's shares at the

appraised price calculated under applicable State (Oklahoma) law,

the family would have to pay the price that was determined by

weighing the values derived under the three valuation methods

mentioned above. See Foglesong v. Thurston Natl. Life Ins. Co.,

555 P.2d 606, 610-611 (Okla. 1976). Oklahoma law prohibits

(continued...)

- 32 Seminole was an attractive investment from both an income

and growth point of view.

Seminole's industry was very

competitive, and Seminole was a firmly based, prosperous company

that was a leader in its industry and projected to continue its

profitability.

Seminole's industry also was thriving as a result

of business acquisitions.

Given the added fact that some of

Seminole's shareholders (e.g., Mr. Hoffman and Ms. Branch) were

contemporaneously interested in selling their Seminole shares, it

is reasonable to conclude that a hypothetical buyer could have

anticipated as of the applicable valuation date that an investor

would buy the hypothetical buyer's shares to allow the investor

to place itself in position more suited to acquiring the company

in full.

We bear in mind that the estate's shares were not

merely growth shares as Mr. Tack assumed.

Seminole had budgeted

and was expecting to pay dividend income of $59,580, $71,496, and

$95,328 in 1994 through 1996, respectively, with respect to the

shares held by the estate.

Mr. Tack assumed that the estate's shares lacked any market.

We disagree.

The shares were marketable in that a hypothetical

holder thereof could most likely sell his or her large block of

stock to a suitor of the company, to a member of the

Weitzenhoffer family (such as Max Weitzenhoffer, who was actively

seeking to increase his interest therein), or to Seminole itself.

13

(...continued)

reducing this price by a minority interest discount. See Woolf

v. Universal Fidelity Life Ins. Co., 849 P.2d 1093, 1095 (Okla.

Ct. App. 1992).

- 33 Mr. Tack never considered Seminole's competitors or Weitzenhoffer

family members potential buyers of Seminole stock.

Nor did he

consider Seminole as a potential buyer, let alone the fact that

Seminole had previously redeemed its stock from retiring

employees pursuant to an obligation to do so.

Neither Mr. Tack

nor the record tells us the price at which Seminole redeemed or

was obligated to redeem its shares (or a formula under which this

price was computed).

The price that a corporation must pay

pursuant to a mandatory redemption plan may be a key determinant

of the stock's fair market value.

Not to mention that a holder

of the estate's stock could find himself or herself a majority

shareholder were Seminole to redeem enough of its shares.

We do

not know which shareholders, but for Messrs. Reeves, Gunzler,

Threadgill, and High, were Seminole employees.

Nor do we know to

what extent the estate's ownership interest would increase were

the shares of all Seminole employees to be redeemed.

Fifth, Mr. Tack neglected to set forth in his report the

features of the class A and class B shares, other than to state

that management had represented to him that these shares are

virtually identical.14

14

Mr. Tack, like Merrill Lynch, ascertained

The record disproves this representation. Mr. Tack's

initial report, for example, states that management had

represented to him that the class A shares were identical to the

class B shares, except that class B shares were held by employees

and were required to be redeemed. In addition to the fact that

Messrs. Reeves, Gunzler, Threadgill, and High all owned class A

shares and all were employees, Seminole's financial statements,

which were certified by Ernst & Young, state that any common

stock held by a shareholder/employee is subject to redemption

(continued...)

- 34 the value of Seminole stock by treating the two classes as one.

Seminole's by-laws and certificate of incorporation are not in

the record, and the record as built by the parties leaves us

unpersuaded that the rights of the holders of the two classes of

stock to vote, to receive dividends, and so forth, are identical.

See generally Okla. Stat. Ann. tit. 18, secs. 1006 A.4.

(certificate of incorporation must generally set forth

differences between classes of stock), 1013 B. (contents of

bylaws), 1032 (classes and series of stock) (West 1986).

Nor did Mr. Tack address the question of whether Seminole's

class A shareholders had cumulative voting.

may add value to shares of stock.

Cumulative voting

Cumulative voting gives each

share as many votes as there are directors to be elected and

allows a shareholder to cumulate his or her votes by casting them

all for one director, or distributing them as he or she sees fit.

See generally Okla. Stat. Ann. tit. 18, sec. 1059 (West 1986)

(certificate of incorporation may provide for cumulative voting).

Cumulative voting may allow a minority shareholder to maximize

his or her representation on a board.

Although petitioners ask

the Court to find, on the basis of a colloquy between their

counsel and Mr. Reeves, that Seminole did not have cumulative

voting, we decline to do so.

The colloquy, which incorrectly

sets forth an example that does not involve cumulative voting, is

as follows:

14

(...continued)

upon his or her termination of employment.

- 35 Q Based upon your participation as a

shareholder and Director, when you

participated in these elections as a

shareholder or Director, were they conducted

under cumulative voting or non-cumulative

voting?

A I get the terms sometimes mixed up. But I

do know that it is such that if somebody owns

25 percent of the stock, for an example, they

do not receive 25 percent of the Board

members. And I believe that is what you call

non-accumulated voting.

Q

That's my understanding as well.

In sum, we are unpersuaded by Mr. Tack's opinion and reject

it.

Having done so, we would typically proceed to value the

estate's shares on the basis of the record at hand.

In the

typical case, we find much information and data on the subject

corporation, as well as financial studies and data which allow us

to compute value and marketability discounts using the Mandelbaum

and other factors mentioned above.

atypical.

The instant case, however, is

Petitioners, in short, ask us to close our eyes to the

inadequate record and adopt without adequate verification

Mr. Tack's conclusion and the managerial representations upon

which he relied.

We decline to do so.

Valuation cases require

that we determine a value based on the evidence at hand.

Whereas

we may determine a value with the assistance of experts, if we

consider it helpful, we will not accept an expert's conclusion

when it is unsupported by the record.

The record must be built

by the parties to include all data that is necessary to determine

the value of property in dispute.

Valuation experts must perform

unbiased and thorough analyses upon which we may rely.

Where, as

- 36 is the case here, the record falls short of the standard which we

require, we are left to decide the case against the party who has

the burden of proof.

Because petitioners bear the burden here,

we sustain respondent's determination, as modified by concessions

in brief.

We hold that the fair market value of the estate's

stock was $56.50 per share on the applicable valuation date.

We have carefully considered all arguments, and, to the

extent not discussed above, find them to be irrelevant or without

merit.

To reflect the foregoing,

Decision will be entered

under Rule 155.