                        T.C. Memo. 2006-96



                      UNITED STATES TAX COURT



    MICHAEL W. AND CAROLINE P. HUBER, ET AL.,1 Petitioners v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos.   2728-03, 3054-03,     Filed May 9, 2006.
                   3553-03, 1212-04.



     Arthur D. Sederbaum, Walter Luers, Stephen P. Younger, and

Catherine G. Schmidt, for petitioners.

     Joseph Boylan, for respondent.




     1
      Cases of the following petitioners are consolidated
herewith: Tabitha A. Huber, docket No. 3054-03; Hans A. Huber
and Laurel D. Huber, docket No. 3553-03; Michael W. and Caroline
P. Huber, docket No. 1212-04.
                               - 2 -

              MEMORANDUM FINDINGS OF FACT AND OPINION


     GOEKE, Judge:   This case concerns the proper amounts of gift

tax that petitioners, Michael W. and Caroline P. Huber, Tabitha

A. Huber, and Hans A. and Laurel D. Huber, should pay under

section 25012 on gifts of stock in the J.M. Huber Corp. (Huber)

that they reported on their Forms 709, United States Gift Tax

Return, during the period 1997 through 2000.   Huber stock was not

publicly traded, and petitioners valued their gifts on the basis

of the prices Huber used for shareholder stock transactions.

These prices were determined by an independent appraiser and used

in various transactions involving Huber stock.   The controversy

stems from disagreement over whether these sales constitute

arm’s-length transactions.   We hold that the transactions in

question are evidence of an arm’s-length price and support the

values petitioners set on their gifts.

                         FINDINGS OF FACT

     Petitioners resided in New Jersey at the time of filing

their petitions.

Huber Corp.

     Huber was founded in 1883 by Joseph Maria Huber (J.M.

Huber), who emigrated from Germany to New York City and started a

printing business.   Huber is headquartered in Edison, New Jersey.


     2
      Unless otherwise indicated, all section references are to
the Internal Revenue Code, as amended.
                               - 3 -

Huber operates a diversified business with annual sales in excess

of $500 million during the years in question.    Huber is a

privately held corporation, but its governance structure strives

to emulate public companies by maintaining a high level of

communications with its shareholders.    During the relevant

taxable years, there were approximately 250 shareholders, who

were generally Huber family members, as permitted by Huber’s

bylaws.   There were also 3,000 to 5,000 employees, most of whom

were not related to the Huber family.    Huber is governed by its

board of directors (the board), the majority of whom are not

members of the Huber family.   Huber’s CEO, president and

chairman, Peter Francis, was one of petitioners’ principal

witnesses.   Mr. Francis has been president of Huber since 1994

and chairman since 1993.   He is the great-grandson of J.M. Huber.

     Pursuant to Huber’s bylaws, there is no public market for

Huber shares.   Since 1993, Huber has retained Ernst & Young (E&Y)

to annually appraise the Huber shares.    However, shareholders may

seek waivers from the board to transfer Huber stock to nonprofit

organizations, which are then allowed to hold the shares or sell

them to permitted shareholders under Huber’s bylaws.    The shares

of Huber are held by members of the Huber family, the Huber

Foundation (a nonprofit charitable organization), and various

independent nonprofit organizations, including universities.
                                 - 4 -

     Although Huber has no formal stock buy-back program, its

bylaws authorize it to redeem stock from Huber shareholders.        The

board is empowered to authorize redemptions and set the price at

which such redemptions are offered.      During the years 1996 to

2000, the board authorized 14 redemptions.      In 1996, Huber bought

back shares at the E&Y value.    For redemptions in the years 1997

to 2000, the redemptions were at the E&Y price less 5 percent.

These redemptions were from Huber family shareholders who wished

to liquidate their shares and from nonprofit organizations that

have received donations of shares, which include the

Massachusetts Institute of Technology, Dartmouth College,

Hitchcock Medical, Hamilton College, the Nature Conservancy, and

the Family Planning Organization.    Each of these transactions

used the E&Y value to determine the redemption price.

     Huber’s bylaws provide the corporation the right of first

refusal to purchase shares offered outside the Huber family at a

price specified in the bylaws.    The bylaws provide that if any

shareholder attempts to sell his shares to a buyer not authorized

by the bylaws, Huber has the irrevocable option to purchase the

shares at the lower of the offer price, the book value, or the

formula price set by the bylaws.3    The bylaws authorize sale of

Huber shares to Huber family members, including lineal


     3
      The formula prices set by Huber’s bylaws was $60.57,
$77.87, $42.38, and $85.13 per share for the taxable years 1997
to 2000, respectively.
                                - 5 -

descendants of J.M. Huber, their spouses, their children, trusts

whose beneficiaries are such persons, and the Huber Foundation.

The bylaws also authorize shareholders to sell to independent

nonprofit organizations after obtaining a waiver from the board.

E&Y Report

     Since 1993, Huber has retained E&Y to prepare a valuation of

Huber, and its determination is reviewed each year by the chair

of Huber’s audit committee.   E&Y does not perform any other

auditing functions for Huber.   E&Y has used a consistent

methodology for valuing Huber shares, which is comparing Huber to

comparable publicly traded companies.   E&Y applies a 50-percent

lack of marketability discount from the freely traded value of

the shares.   Although shareholders are not generally sent copies

of the E&Y reports, the reports are available for inspection by

Huber shareholders.   The E&Y reports were used for the following

valuation purposes by Huber and its shareholders:   (1) Valuing

gifts of Huber shares made to nonprofit organizations; (2)

valuing both the grant and exercise of stock options issued to

Huber’s CEO; (3) fixing the compensation of Huber’s board

members; (4) evaluating the performance of Huber as a whole; and

(5) valuing shares that are bought back by Huber from its

shareholders.   No one at Huber ever indicated what value or
                               - 6 -

discount was wanted before E&Y completed the reports.    Mr.

Francis did not receive draft reports in advance.

Transactions Between Shareholders

     From 1994 to 2000, there have been approximately 90

transactions of Huber shares between shareholders.    The

shareholders are not obligated to use the E&Y value to sell their

shares.   The relationships between buyers and sellers varied.

Some were as close as between parents and children or

grandparents and grandchildren.   Others were as distant as

between a trust and a spouse of a second cousin.    Other

transactions involved nonprofit organizations which sold shares

to Huber family members.   Each of these sales occurred at the E&Y

value.

     Petitioners timely filed their Forms 709 for the taxable

years 1997 to 2000 reflecting gifts of Huber shares from

petitioners to their lineal descendants.   Petitioners based the

values assigned to the shares on the valuation reports prepared

by E&Y.   At trial, petitioners relied principally on two sets of

transactions as representative examples of the 90 sales:    The

Brown estate transactions (Brown estate) and the Anne Foster

trust transactions (Foster trust).
                                 - 7 -

The Brown Estate Transactions

     Ellen Mertens Brown, a third-generation descendant of J.M.

Huber, died in 1992.    At her death, Mrs. Brown owned over 300,000

Huber shares.   Mrs. Brown’s son, Bruce Seely, and her stepson,

George Brown, were named as coexecutors of the Brown estate.      The

coexecutors intended to sell some of Mrs. Brown’s shares of Huber

in order to pay the estate tax.    Since the value of the shares

had not been finally determined for Federal estate tax purposes,

the coexecutors obtained from the Internal Revenue Service (IRS)

a series of five 1-year extensions to pay the estate tax.    In

mid-1997, the coexecutors settled the estate tax issues with the

IRS and agreed upon the payment date of March 16, 1998, for the

estate tax liability.

     In the fall of 1997, Mr. Seely, who was also a Huber family

member, sought to raise the necessary funds to satisfy the estate

tax liability by selling the Brown estate shares held in Huber.

Mr. Seely understood that he owed fiduciary duties to the Brown

estate’s beneficiaries (of whom he was one) to get the best price

for the estate’s Huber shares.    Mr. Seely was familiar with E&Y’s

valuation and received an overview of its report annually.    In

addition, Mr. Seely attended Huber’s annual shareholder meetings,

served as a nonvoting director, and received Huber’s quarterly

reports, operating plan, and budget.     In October 1997, Mr. Seely

and Mr. Brown, as coexecutors of Mrs. Brown’s estate, sold 52,796
                                 - 8 -

Huber shares to a total of 25 purchasers, many of whom included

distant relatives or trustees acting in their fiduciary

capacities.   Two of the buyers, W. Anthony Brooke and Peter S.

Brock, testified at trial.   Mr. Brooke is the husband of Mr.

Seely’s second cousin.   Mr. Brooke holds an M.B.A from Stanford

and currently runs a private equity firm called JMH Capital.        Mr.

Brooke regularly received and reviewed Huber’s 5-year plan,

yearly budgets, monthly financial reports, and annual reports.

Mr. Brock is Mr. Seely’s first cousin but sees him only

occasionally.   Mr. Brock is an architect with a B.A. from

Princeton University and a master’s in architecture from the

University of California.    Mr. Brock served on Huber’s board for

13 years and on several other committees.      All of the purchasers

of Huber shares from the Brown estate paid the E&Y value.

Foster Trust Transactions

     Anne H. Foster, a third-generation Huber family member, died

in 1988.   After the death of her surviving spouse, Raymond

Foster, the beneficiaries of Ms. Foster’s trust were her four

children and three nonprofit organizations.      In 1998, Eric Goetz

became cotrustee of the Foster trust together with one of Ms.

Foster’s daughters, Lynn Zinn.    Mr. Goetz and Ms. Zinn were also

coexecutors of Ms. Foster’s estate.      At that time, the Foster

trust held approximately 96,000 shares of Huber stock.      Mr. Goetz
                                - 9 -

is not a member of the Huber family and does not own any Huber

stock individually.

     In 1999, the Foster trust needed $213,000 to satisfy trust

expenses, including legal and accounting fees and reimbursement

for the estate taxes paid by the Raymond Foster estate.    Mr.

Goetz and Ms. Zinn, as cotrustees, raised this cash through

several methods.   One was a sale of shares to several other

family members and to a nonprofit organization at the E&Y value.

The cotrustees raised approximately $30,000 from these sales.

     Erika Dade, one of Ms. Foster’s children and a beneficiary

of the Foster trust, as well as a purchaser of Huber shares from

the Foster trust, testified.   She attends Huber’s annual meetings

and receives and reviews Huber’s quarterly reports and

communications from its divisions regarding the performances of

their business sectors.   She has served as a nonvoting Huber

board member and sat on Huber’s audit committee.    She regularly

speaks with Huber’s CEO, Mr. Francis (who also is her brother),

about the corporation.    Further, she is knowledgeable about the

E&Y valuation and comfortable with the E&Y value.    She

understands the methodology that E&Y used.   To her knowledge, no

one has ever complained about the E&Y valuation.    Ms. Dade is

aware that other shareholders were buying and selling at the E&Y

price and that the board was using the E&Y value to determine

their compensation and to measure the performance of Huber.
                               - 10 -

Notices of Deficiency

     Respondent issued separate notices of deficiency to

petitioners.4   Petitioners thereafter timely filed petitions with

this Court objecting to the notices of deficiency.

     Respondent agreed with E&Y’s freely traded values of Huber

shares; however, respondent took issue with the appropriate

discount for lack of marketability because of a report by

respondent’s expert, Appraisal Economics, Inc.   While E&Y has

always applied a 50-percent discount since its employment with

Huber in 1993, respondent’s expert applied a 30-percent discount

for 1997, a 25-percent discount for 1998, a 45-percent discount

for 1999, and a 30-percent discount for 2000.    The discrepancies

in valuation of the shares are as follows:

         Year           Petitioners’ Value   Respondent’s Value
         1997                 $45.75                 $64.05
         1998                  51.50                  77.25
         1999                  47.50                  52.25
         2000                  58.00                  81.20

     Respondent also rejected the E&Y values because he

determined the sales at these values were not arm’s-length

transactions.   The threshold issue at trial was whether there


     4
      Respondent issued separate notices of deficiency
determining deficiencies in the gift tax of petitioners Michael
A. and Caroline P. Huber for the tax years 1997, 1998, 1999, and
2000; Tabitha A. Huber for the tax years 1997 and 1998; and Hans
A. and Laurel D. Huber for the tax year 1997.
                                - 11 -

were arm’s-length sales of Huber shares that could be used to

determine the values of the gifts made by petitioners.

                                OPINION

I.    Burden of Proof

      Respondent argues that under section 7491(a), the burden of

proof does not shift to respondent but remains with petitioners.

We do not reach this issue because we find that the outcome of

this case is determined on the preponderance of the evidence and

is unaffected by section 7491.    See Estate of Bongard v.

Commissioner, 124 T.C. 95, 111 (2005) (citing Blodgett v.

Commissioner, 394 F.3d 1030, 1035 (8th Cir. 2005), affg. T.C.

Memo. 2003-212); Estate of Stone v. Commissioner, T.C. Memo.

2003-309).

II.   Arm’s-Length Quality of Huber Stock Sales

      Section 2501 imposes a tax on the transfer of property by

gift during the taxable year.    This tax is imposed whether the

transfer is in trust or otherwise and whether the gift is direct

or indirect.   Sec. 2511.   A gift of property is valued as of the

date of the transfer.   Sec. 2512(a).     The gift is measured by the

value of the property passing from the donor, rather than by the

value of the property received by the donee or upon the measure

of enrichment to the donee.   See sec. 25.2511-2(a), Gift Tax

Regs.
                                - 12 -

     The fair market value of the transferred property is the

“price at which such 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.”    Sec. 25.2512-1, Gift Tax Regs.

Where property is transferred for less than adequate and full

consideration in money or money’s worth, the amount of the gift

is the amount by which the value of the property transferred

exceeds the value of the property received.    See sec. 2512(b).

In determining the value of unlisted stocks, actual arm’s-length

sales of the stock in the normal course of business within a

reasonable time before or after the valuation date are the best

criteria of market value.   Ward v. Commissioner, 87 T.C. 78, 101

(1986) (citing Duncan Indus., Inc. v. Commissioner, 73 T.C. 266,

276 (1979)).

     The parties dispute whether sales of Huber stock at the

value set by E&Y qualified as arm’s-length sales.    Petitioners

cite Morrissey v. Commissioner, 243 F.3d 1145 (9th Cir. 2001),

revg. Estate of Kaufman v. Commissioner, T.C. Memo. 1999-119, to

support the proposition that the transactions at issue qualify as

arm’s-length sales.   In Morrissey, a family-owned corporation

retained Merrill Lynch to appraise a minority interest.    On the

basis of the report, two shareholders sold their shares to the

second largest shareholder at the price set by Merrill Lynch.
                                - 13 -

Each seller testified that the price was fair and that the sale

had been under no compulsion.    The Court of Appeals for the Ninth

Circuit found that these two transactions satisfied the

requirements of an arm’s-length sale because (1) family

connections were not particularly close; (2) sellers were under

no compulsion to sell; (3) sellers had no reason to doubt an

independent valuation of the shares by a reputable firm; and (4)

there was evidence that there was no intention to make a gift to

the buyer.   Petitioners cite each of these factors in support of

their position, while respondent contests each factor’s

application to this case.

     We declined to extend Morrissey in McCord v. Commissioner,

120 T.C. 358 (2003), appeal docketed No. 03-60700 (5th Cir.

2003).   However, McCord is distinguishable because the taxpayers

based the valuation of the stock on an assignment of a portion of

a partnership transferred by gift instead of on a previous sale

of the stock.    The taxpayers, who were husband and wife, assigned

their partnership interests to their children and two nonprofit

organizations.   The assignees, pursuant to the assignment

agreement, executed a confirmation agreement to divide the

interest amongst themselves.    The interest was valued by an

appraiser retained by the children.      The taxpayers, citing

Morrissey, argued that the confirmation agreement was conclusive

proof of the value of the gift interest because the agreement was
                               - 14 -

an arm’s-length transaction that was the “functional equivalent”

of an actual arm’s-length sale.    Id. at 373 n.9.   We disagreed,

stating that “it is against the economic interest of a charitable

organization to look a gift horse in the mouth.”     Id.   The facts

in this case are not analogous to those of McCord because here

actual sales took place.    The nonprofit organizations that

acquired Huber shares without compulsion to sell sold them for

the price that the E&Y appraisal suggested.     Unlike McCord, this

is not a situation where having been designated to receive a

gift, the charity would have taken whatever it could get.

Therefore, McCord is distinguishable on its facts.

       The parties’ analytical framework corresponds to the factors

discussed in Morrissey.    The parties base their conclusions about

the arm’s-length nature of the sales on their view of the Huber

family relationships, the presence or lack of compulsion on the

part of the seller, the reasonableness of the shareholders’

reliance on the E&Y value, and the intent of the parties with

respect to the sales.    We shall therefore generally follow this

framework and address any collateral arguments that the parties

raise.

III.    Relationship of Shareholders in Huber

       Respondent brings to our attention that this Court has

consistently closely scrutinized purported transactions between

related parties, such as family members, and often concluded that
                               - 15 -

they were not arm’s-length transactions.    See Kimbell v. United

States, 371 F.3d 257, 265 (5th Cir. 2004); Estate of Bongard v.

Commissioner, 124 T.C. at 123.    We find respondent’s

characterization of the issue to be too narrow, and in addition

it ignores facts that we find critical to the outcome of this

case.    Respondent focuses on isolated sales that took place

between closely related family members as if they were the only

sales.    There were over 90 transactions that took place between

1994 and 2000 by Huber shareholders involving an amalgam of

relationships:    (1) Between immediate relatives; (2) between more

distant relatives; and (3) between shareholders of Huber and

independent nonprofit organizations.5   Each of these sales took

place at the E&Y value.

     Respondent also suggests that there was a “taint of


     5
      Respondent frames his arguments in this case around the
premise that there were only two sales of Huber stock--the Brown
estate and the Foster trust--that provide the basis for
determining whether the sale of Huber stock was at arm’s length.
Although the Foster trust and Brown estate sales were the most
factually developed in the record and the center of the
testimony, the record also shows that there were a total of 90
sales between Huber shareholders since 1994. These sales
included transactions between distant relatives and trusts,
independent nonprofit organizations and Huber, and Huber family
members and independent nonprofit organizations.   Respondent
maintains that these transactions were not “in the record”.
However, the CEO of Huber and one of the former members of the
board credibly testified as to their personal knowledge of these
transactions. Therefore, we are not basing our conclusions
solely on the Foster trust and Brown estate sales, even though
some of the transactions in those sales included parties that
were not closely related.
                              - 16 -

impropriety” in the Brown estate transaction because Mr. Seely

and his children were beneficiaries of trusts that purchased a

portion of the shares.   However, Mr. Seely credibly testified

that he had no knowledge that there were shares being purchased

for these trusts since his contact was with the trustee, who was

also the trustee of various other trusts and who did not identify

the particular trust for which he was buying the shares.   In

addition, those particular transactions make up just 1,236 shares

of the over 52,000 shares of the Brown estate shares that were

sold at the E&Y price.   We have already indicated that many of

those sales took place between parties who had no reason to

accept a price that was artificially low.   In the case of the

Brown estate, Mr. Seely also sold shares to the husband of his

second cousin at the E&Y price.   Mr. Seely testified that he

rarely saw the distantly related buyer and was not particularly

close to him.   Therefore, Mr. Seely had no reason to offer the

shares to anyone at a bargain price.   Indeed, Mr. Seely had every

reason to sell the stock at a fair price because as coexecutor of

the estate he had a fiduciary duty to the estate’s beneficiaries

to do so.   Similarly, Mr. Goetz testified that he absolutely

understood that he was acting as a fiduciary of the Foster trust

in selling the shares.

     We therefore conclude that the existence of close family

relationships between parties of some of the 90 sales
                                 - 17 -

transactions in the record is neutralized by the fact that many

of the transactions took place between parties that were hardly

related or unrelated and who had fiduciary obligations to obtain

the best price.     We view the variety of relationships among the

shareholders in Huber as a positive indicator of the existence of

arm’s-length sales.

IV.   Compulsion

      Respondent argues that the sales of the shares from the

Brown estate and the Foster trust were under “compulsion” and

thus not representative of arm’s-length sales.      Respondent relies

on Acme Mills, Inc. v. Commissioner, 6 B.T.A. 1065 (1927).

However, in Acme Mills, the Court found that the taxpayers were

under “very decided pressure” from their creditors to sell the

property in order to settle creditor claims.      Id. at 1067.   There

was no such pressure here.      The Brown estate sold its shares to

pay the estate tax; there was no immediate time constraint.      The

executors had been planning for a number of years to sell the

shares and were waiting for their tax obligations to be resolved

so that they knew how much money was needed.     Once a valuation of

the estate was agreed upon with the IRS, the estate had 5 months

to pay the liability.      The estate was able to sell the shares in

just 1 month.      Mr. Seely testified that he felt no pressure to

sell the estate’s shares and that he raised the necessary funds

to pay the estate tax within a matter of weeks.      We fail to see
                              - 18 -

compulsion similar to that in Acme Mills.     Similarly, in the case

of the Foster trust, Mr. Goetz testified that he was under no

pressure to sell the Huber shares.     The sales were made to pay

budgeted obligations of the trust, and selling Huber shares was

just one of the ways to raise the money.     Mr. Goetz had other

options to raise the money.

V.   E&Y Report

      The value set by E&Y was used to set the board’s

compensation and measure the financial performance of Huber.

Huber has retained E&Y since 1993 to prepare an independent

valuation for the different situations that require a valuation

of Huber shares.

      Respondent attempts to demonstrate that the E&Y reports were

not reliable by attacking the E&Y reports from several angles in

order to persuade us that the parties were not reasonably

informed about Huber’s worth and thus not “motivated to realize

fair market value for the stock.”    First, respondent notes that

the E&Y reports were 11 months old at the time of the Brown

estate transactions and 8 months old at the time of the Foster

trust transactions.   Respondent cites subsequent valuation

reports by E&Y indicating that the price per share was increased

by $5.75 and $10.50, respectively.     Because of the time lapse,

respondent argues that the sellers lost out on “some increased

profit”.
                                - 19 -

     Respondent’s argument ignores the evidence.    None of the

parties who testified believed that there had been a significant

change in Huber’s finances since the last valuation, and those

parties demonstrated their independent knowledge of Huber’s

worth.     Further, we do not find the time lapse in this case to be

unreasonable.     See Hooker Indus. v. Commissioner, T.C. Memo.

1982-357 (crediting a single sale of stock as “best criteria of

market value” even though it relied on an appraisal that was 13

months old).

         Respondent argues that the parties were not reasonably

informed because they did not see a copy of the E&Y report.       This

narrow argument fails to address that the shareholders of Huber,

including the ones who testified, regularly received reports from

Huber, discussed the company with its CEO, attended shareholder

meetings, and participated on Huber’s board of directors and its

committees.     Further, one of the buyers of the stock from the

Brown estate, Mr. Brooke, testified that he did see the E&Y

report.     Whether the shareholders actually saw the report does

not influence our conclusion that the parties were well informed

because the modus operandi of Huber gave plenty of opportunity

for shareholders to educate themselves about the company and the

E&Y methodology, and the evidence shows that many of the parties

to the sales at issue in fact did just that.
                                - 20 -

     Contrary to another argument raised by respondent, we do not

find donative intent in the transactions using the E&Y price to

buy and sell Huber stock.   There is no evidence to support this

assertion and much evidence that is inconsistent with it.    For

example, the CEO’s acceptance of an artificially low E&Y value

for Huber stock would be against both his own economic interests

and those of Huber and its shareholders.   The success of this

centenarian company and the vast acceptance of the E&Y price by

its 250 shareholders strongly suggest that the sellers of E&Y

stock had every reason to believe that they were obtaining a fair

price for their shares.

     Respondent argues that the lack of negotiation in the

transactions at issue connotes the lack of an intent to realize

the best price for the value of the shares.   Respondent fails to

cite any caselaw that holds that negotiation is a necessary

element of an arm’s-length transaction.    In fact, the weight of

authority is to the contrary.    See, e.g., Kimbell v. United

States, 371 F.3d at 263 (“absence of negotiations * * * over

price or terms is not a compelling factor in the determination as

to whether a sale is bona fide, particularly when the exchange

value is set by objective factors”); Hooker Indus. v.

Commissioner, supra (stock sale deemed best evidence of value

where there was no price negotiation and parties accepted a

third-party’s valuation).
                               - 21 -

     Respondent offers a final reason we should not consider the

sales of Huber stock to be at arm’s length.   He argues that the

Huber shareholders, by not offering their shares for sale to the

public, failed to obtain the optimum price, which respondent

assumes is higher than the E&Y value.   Respondent suggests that

“it is not unreasonable to assume that an unrelated individual or

corporation would be willing to pay a premium, in excess of the

value Huber corporation sets, to invest in the company.”

Respondent corroborates this argument by suggesting that the

bylaws of Huber provide a right-of-first-refusal provision

whereby shares offered to nonfamily members could be purchased by

the corporation at a price generally higher than the value that

E&Y computes.   We disagree.

     We reject the notion that Huber must take itself public in

order to sell its shares at a fair price.   Courts have long

recognized the rights of shareholders in closely held companies

to remain private.   Estate of Hall v. Commissioner, 92 T.C. 312

(1989).   In addition, the CEO, Mr. Francis, provided in his

testimony bona fide business purposes for staying private.     He

testified that keeping Huber private would allow the company to

advance key values and have a long-term view of its business.

     Respondent takes his argument a step further by postulating

that the bona fide business purpose of maintaining family control

should be set aside if it serves as a device to “pass an interest
                                - 22 -

to the natural objects of one’s bounty or to convey that interest

for less than full and adequate consideration.”    See Estate of

True v. Commissioner, T.C. Memo. 2001-167, affd. 390 F.3d 1210

(10th Cir. 2004); Bommer Revocable Trust v. Commissioner, T.C.

Memo. 1997-380.    This is another instance where respondent

narrowly focuses on some of the transactions at issue without

taking into account that the E&Y value of the stock was used in

many instances.    For example, in the case of a charitable

donation, a higher value would be preferable because that would

result in a larger deduction.    We reject respondent’s suggestion

that almost 250 shareholders would harmoniously accept an

artificially low valuation of the Huber stock so that a few

people who may or may not be related to them can pay less estate

tax.    Further, respondent’s assumption that offering a stock to

the public would have garnered a higher price is purely

hypothetical.    The only evidence respondent offers is a

mischaracterization of the Huber bylaws.

       Respondent maintains that the buyback provisions provide a

price that is higher than the E&Y value.    According to

respondent’s logic, if the stock were offered to a third party

and Huber exercised its right of first refusal, it would buy the

shares back at a price higher than the E&Y price.    This is

incorrect.    While the formula price set in the bylaws may be

higher than the E&Y value, respondent ignores the fact that any
                              - 23 -

buyback would be at the lower end of the formula price, book

value, or price offered by a third party.    There is no basis to

suggest that there was a market available wherein a potential

buyer would purchase Huber shares at a price higher than the E&Y

value.

VI.   Conclusion

      Not only have petitioners prevailed on all of the factors

listed in Morissey v. Commissioner, 243 F.3d 1145 (9th Cir.

2001), but several other facts already discussed make their case

stronger than that of the taxpayers in Morissey.   We conclude

that the sales of Huber stock established in the record are

arm’s-length sales that demonstrate the best reference for the

valuation of Huber shares on petitioners’ gift tax returns.

      To reflect the foregoing,


                                   Decisions will be entered for

                              petitioners in docket Nos. 2728-03,

                              3054-03, 3553-03, and 1212-04.
