                         T.C. Memo. 2011-244



                       UNITED STATES TAX COURT



  ESTATE OF LOUISE PAXTON GALLAGHER, DECEASED, F. GORDON SPOOR,
              PERSONAL REPRESENTATIVE, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 16853-08.              Filed October 11, 2011.



     James R. Spoor and Jon M. Wilson, for petitioner.

     Stephen R. Takeuchi and Robert W. Dillard, for respondent.



                 SUPPLEMENTAL MEMORANDUM OPINION


     HALPERN, Judge:    Our Memorandum Findings of Fact and Opinion

in this case was reported as Estate of Gallagher v. Commissioner,

T.C. Memo. 2011-148.   We issue this supplemental opinion to


     *
      This opinion supplements our previously filed Memorandum
Opinion, Estate of Gallagher v. Commissioner, T.C. Memo. 2011-
148.
                               - 2 -

correct an error in our computation of the value of 3,970

membership interests (units) in Paxton Media Group, LLC, a

Kentucky limited liability company included in Louise Paxton

Gallagher’s gross estate.

     In the appendix to our original report, we calculated the

value of the 3,970 units to be $32,601,640 by using a discounted

cashflow analysis.   We computed the total present value of

expected cashflows for 5 years and added to that sum the present

value of a reversion, which we assumed to be received at the end

of the fifth year.   In computing the present value of the

reversion, we erred in using the present value factor “(1 +

0.1)6”.   To determine the present value of the reversion to be

received at the end of the fifth year, the value of the exponent

in the present value factor should have been 5, not 6.   We have

attached hereto a new appendix in which we have revised our

computation of the value of the 3,970 units, using the corrected

present value factor and determining a value for the units of

$35,761,760 (an increase of $3,160,120), which we find to be the

value of the 3,970 units (the shares) as of the valuation date.


                                       Decision will be entered

                                  under Rule 155, Tax Court Rules

                                  of Practice and Procedure.
                                                                                 - 3 -
                                                                              APPENDIX
                                                 Valuation of 3,970 Units of Paxton Media Group, LLC as of July 5, 2004

    Projected Items                                          LTM* ended June 27, 2004      Year 1           Year 2           Year 3           Year 4           Year 5

    Revenue                                                       $163,602,288           $172,514,890     $175,102,613     $176,853,640     $178,622,176     $180,408,398

    Operating income                                                                      62,795,420       63,737,351       64,374,725       65,018,472       65,668,657
      (@ 36.4% op. margin)

    Other income (expense)                                                                   172,515          175,103          176,854          178,622          180,408
      (@ 0.1% of revenue)

    Adjusted operating income                                                             62,967,935       63,912,454       64,551,579       65,197,094       65,849,065

    Cashflow adjustments

    + Depreciation                                                                         5,347,962        5,428,181        5,482,463        5,537,288        5,592,660
      (3.1% of revenue)

    (-) Working capital additions                                                            222,815           64,693           43,776           44,213           44,656
      (-2.5% of revenue)

    (-) Capital expenditures                                                             (4,830,417)      (4,902,873)      (4,951,902)      (5,001,421)      (5,051,435)
      (2.8% of revenue)

    Yearend cashflow                                                                      63,708,295       64,502,455       65,125,916       65,777,174       66,434,946

    Discount rate (WACC)                                                                            10%              10%              10%              10%              10%
                                             n
    Present value interest factor (1 / (1.1) )                                                   0.9091        0.8265           0.7513           0.6830           0.6209

    Present value of cashflows                                                            57,917,211       53,311,279       48,929,101       44,925,810       41,249,458

    Total present value of cashflows (year 1 - year 5)                            $246,332,859

    Present value of reversion:                                                    462,981,425
      66,434,946 (1.01 / (0.1 - 0.01)) / ((1 + 0.1)5)
    Total present value of all future cashflows                                    709,314,284
    Long-term debt                                                                (243,602,413)
    Enterprise value of PMG (w/o discount)                                         465,711,871

    Value less in-the-money value of options1                                      448,290,271

    Value with 23% minority discount                                               345,183,509
    Value with 31% lack of marketability discount                                  238,176,621
    Value of each unit                                                                   9,008
    Value of 3,970 units                                                            35,761,760
    * Last 12 months




1
($9,008-$2,786) x $2,800 = $17,421,600
