                          T.C. Memo. 2001-31



                       UNITED STATES TAX COURT



    ESTATE OF CYRIL I. MAGNIN, DECEASED, DONALD ISAAC MAGNIN,
                     EXECUTOR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 24883-92.            Filed February 12, 2001.


     Stuart S. Lipton, Frederick J. Adam, Jerome B. Falk, Jr.,

Douglas A. Winthrop, and Denise M. Riley, for petitioner.

     Rebecca T. Hill, for respondent.



         SUPPLEMENTAL MEMORANDUM FINDINGS OF FACT AND OPINION


     RUWE, Judge:    This case is before the Court on remand from

the Court of Appeals for the Ninth Circuit for further

consideration consistent with its opinion in Estate of Magnin v.


     *
      This Memorandum Opinion supplements our Memorandum Opinion
in Estate of Magnin v. Commissioner, T.C. Memo. 1996-25, revd.
and remanded 184 F.3d 1074 (9th Cir. 1999).
                                - 2 -

Commissioner, 184 F.3d 1074 (9th Cir. 1999), reversing our

decision in T.C. Memo. 1996-25, regarding the proper measurement

of the property interest transferred by decedent and remanding

for a determination of the values of the property interests both

transferred and received by decedent pursuant to an October 31,

1951, agreement.   The issue for decision on remand is whether

decedent received “adequate and full consideration” within the

meaning of section 2036(a)1 for the remainder interest he agreed

to transfer to his children.

                         FINDINGS OF FACT

     We stated the detailed and intricate facts of this case in

our original opinion.   See Estate of Magnin v. Commissioner, T.C.

Memo. 1996-25.   We summarize the relevant facts from that opinion

and set forth additional findings of fact for purposes of

deciding the issue on remand.

1951 Agreement Between Joseph and Cyril

     On October 31, 1951, decedent, Cyril Magnin (Cyril), entered

into an agreement (the 1951 Agreement or the Agreement) with his

father, Joseph Magnin (Joseph), relating to shares of stock in

two companies, “Joseph Magnin Co., Inc.” (JM) and “Specialty

Shops, Inc.” (Specialty).

     The preamble to the Agreement set forth the following

     1
      Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect as of the date of decedent’s
death, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                               - 3 -

premises:

          WHEREAS the parties hereto are the owners of the
     majority of the issued and outstanding stock of JOSEPH
     MAGNIN COMPANY, INC., a California Corporation, and
     SPECIALTY SHOPS, INC., a Nevada Corporation,
     hereinafter called "said corporations"; and

          WHEREAS the parties hereto have over many years
     last past mutually controlled the operation and
     management of said corporations in the best interests
     of said corporations and the stockholders thereof; and

          WHEREAS Cyril Magnin desires that upon the death
     of Joseph Magnin, the control of said corporations
     shall be vested in Cyril Magnin for the term of his
     life; and

          WHEREAS Joseph Magnin is willing under and subject
     to the terms and conditions hereinafter set forth, to
     provide in his Last Will and Testament that all of his
     stock, both common and preferred, of said corporations
     shall be bequeathed to Cyril Magnin, as trustee for the
     benefit of Cyril Magnin, Ellen Magnin Newman, Donald
     Magnin and Jerry Magnin, and that Cyril Magnin, as said
     trustee, shall have the sole right to vote said stock
     for the term of his life as provided in said Last Will
     and Testament[.]

Consistent with these premises, the terms of the Agreement

provided that Joseph agreed to bequeath his JM and Specialty

stock to Cyril as sole trustee for Cyril’s life as already

provided in his will, which provision he agreed not to revoke.

Cyril agreed to will in trust all his JM and Specialty stock “now

owned or hereafter acquired” to a bank trustee for the benefit of

his three children.   The Agreement further provided that in the

event of the sale of all or any part of the stock of the

corporations, or in the event of a dissolution of either
                                - 4 -

corporation, Cyril would create a trust of the proceeds he

received, under the terms of which the income of said trust would

belong to Cyril for his life, and the principal would be

distributed upon his death to his three children.

     Prior to the 1951 Agreement, Joseph and Cyril were concerned

about the future of their businesses.   Cyril had begun dating

women after the death of his wife, Anna, and Joseph wanted to

ensure that the business would remain in the family and that

Cyril’s shares of stock would not go to one of these women.

Cyril, on the other hand, was concerned about control of the

business upon Joseph’s death.   Control of the business was very

important to Cyril; he saw control of the business as a means to

enhance his social, political, and business position in the

community.   Cyril also feared that if he had to share control

with his children, he might someday be fired by them.

     As of October 31, 1951, JM had issued and outstanding

255,174 shares of stock, consisting of 72,717 shares of preferred

stock and 182,457 shares of common stock, all of which had voting

rights.2   The shareholdings of Joseph and Cyril in JM were as



     2
      The articles of incorporation of Newman, Magnin & Co.
(subsequently JM) were silent as to the voting rights of the
preferred stock until a 1968 amendment, which expressly provided
that the preferred stock was entitled to voting rights equal to
those of the common stock. However, it appears that prior to the
1968 amendment, the preferred stock was considered to be voting
by the corporation and that the holders of the preferred stock
actually did exercise voting rights.
                              - 5 -

follows:

                                      Joseph              Cyril

     Common stock                     50,648              75,044
     Preferred stock                  21,464              11,035
       Total                          72,112              86,079

Thus, Joseph held 28.26 percent of the voting power of JM, and

Cyril held 33.73 percent of the voting power; together their

shares represented 61.99 percent of the voting power.

     As of October 31, 1951, Specialty had issued and outstanding

101,000 shares of stock, consisting of 1,000 shares of voting

common stock and 100,000 shares of nonvoting preferred stock.

The ownership of Specialty stock as of that date is unclear, but

it appears that Jean Blum owned 500 shares of the common stock

and 50,000 shares of the preferred stock, and Cyril, Joseph, and

Donner Factors together owned the remaining 500 shares of common

stock and 50,000 shares of preferred stock.    For purposes of

valuing the respective stock interests of Cyril and Joseph, both

parties’ experts assumed the following share ownership in

Specialty:3




     3
      In respondent’s proposed findings of fact, respondent
states that both experts assumed these figures were the share
ownership of Cyril and Joseph. The estate failed to object, and
its valuations assume the same numbers. Both parties relied on
the expert reports, and the share ownership of Specialty used in
them, in reaching their respective conclusions as to the value of
the interests transferred and received by Cyril. Accordingly,
these figures are used for purposes of deciding the value of the
respective stock interests of Cyril and Joseph.
                                 - 6 -

                                     Joseph              Cyril

     Voting common stock               112.5                 47.5
     Nonvoting preferred stock      25,000               25,000

     On October 31, 1951, Cyril also held certain options to

acquire JM stock.   On October 31, 1945, Joseph had granted to

Cyril and Anna (as joint tenants with the right of survivorship)

an option to purchase 18,158 shares of Joseph’s common stock in

JM at $1 per share.   The option could be exercised only within 90

days after Joseph’s death.    Cyril also held various options to

purchase 7,185 shares of JM common and 11,850 shares of JM

preferred stock owned by Edward R. and Mae C. Nichols, which were

granted by four agreements dated between April 4, 1941, and May

6, 1943 (the Nichols options).4    Joseph was a party to the May 6

agreement, which had granted the option to purchase most of the

Nicholses’ JM stock (i.e., 7,185 shares of common and 10,000

shares of preferred stock).

Performance of October 31, 1951, Agreement

     Joseph died on April 29, 1953.      Cyril was the executor of

Joseph’s estate.    Joseph’s Last Will and Testament bequeathed all

his stock in JM and Specialty to Cyril in trust and provided that

Cyril was to divide the stock into four separate trusts.

One-half of the stock was to be placed in the Cyril Magnin Trust


     4
      In May 1960, Cyril assigned his rights in the Nichols
options to the testamentary trust established by Joseph’s will of
which he was the trustee. On June 3, 1960, Cyril exercised the
options on behalf of the trust.
                                - 7 -

for the benefit of Cyril.   One-sixth of the stock was to be

placed in each of the three remaining trusts, one trust for the

benefit of each of Joseph’s three grandchildren.   As the trustee

of the four trusts, Cyril had the power to vote the stock.     These

provisions were as promised by Joseph to Cyril under the October

31, 1951, agreement.   Additionally, Cyril received a life

interest in the income from the Cyril Magnin Trust.

     On May 25, 1971, Cyril created three trusts, one for each of

his three children.    He transferred, inter alia, the proceeds of

his JM stock that had been sold in a 1969 buyout of all JM stock

by Amfac, Inc.   Under the terms of each trust, Cyril retained an

income interest for his life, and upon Cyril’s death, the trust

was to terminate, and the principal and undistributed income were

to be distributed to the beneficiary.   This transfer to the 1971

trusts was made in fulfillment of Cyril’s obligations under the

October 31, 1951, agreement with Joseph.

Facts Related to Value of JM and Specialty

     JM originally operated one location in downtown San

Francisco.   In 1928, a second store was opened in Palo Alto,

California, and three other stores were opened between 1943 and

1950--one in San Mateo and two in Sacramento, California.    JM did

not begin to expand considerably until the mid-1950's, eventually

operating 32 stores by the end of 1969.    JM was primarily engaged

in the sale of women’s clothing and accessories, and it also
                                    - 8 -

provided beauty salon services.       JM catered toward younger women

between the ages of 20 and 30 years old and in middle- to upper-

income brackets.

     In January 1940, Cyril, Joseph, and Jean Blum formed

Specialty for the purpose of operating a branch store in Reno,

Nevada.    At that time, JM lacked the capital to open a new store.

Specialty opened a second store in Oakland, California, in 1948,

and a third store in Lake Tahoe, Nevada, in 1950.           All

Specialty’s stores were operated under the JM name and by JM

management, and they had merchandise and customers similar to

JM’s.

     Whenever possible, JM and Specialty elected to lease rather

than own their store locations.       The companies did not have a

great deal of available capital, and leasing store locations

permitted them to expand.

     Relevant financial data from the financial statements of JM

for the fiscal years ending January 31, 1949 through 1952, are as

follows:

                            Fiscal Year Ending January 31
                                   (In Thousands)

                             1949           1950     1951     1952

Assets                   $1,778       $1,886       $1,983   $2,161
Earned surplus              645          749          757      782
Sales                     4,994        4,856        5,239    5,591
Net income                  117           58           41       38

     Similarly, relevant data from the financial statements of
                                     - 9 -

Specialty for the fiscal years ending January 31, 1949 through

1952, are as follows:

                             Fiscal Year Ending January 31
                                    (In Thousands)

                              1949           1950   1951       1952

Assets                       $452        $405       $385       $432
Earned surplus                120         103        127        148
Sales                         742         644        593        677
Net income                     35           6         24         21

     On his 1948 gift tax return, Joseph valued the JM common

stock at $1.86 per share.     On his 1950 gift tax return, Joseph

valued the JM common stock between $1.98 and $2.25 per share.           On

his 1949 gift tax return, Cyril valued the JM common stock at

$2.25 per share and the JM preferred stock at $.90 per share as

of December 24, 1949.      Cyril’s 1949 gift tax return was not filed

until 1957, and it acknowledged that the values were in line with

the stock values determined in connection with the settlement of

Joseph’s estate.   Joseph died on April 29, 1953.           Joseph’s estate

tax return included the value of JM and Specialty stock as

follows:

                   Stock                             Per-Share Value

     18,158 shares JM subject to option
      at $1 per share                                       $1.00
     33,490 shares JM, common                                1.50
     21,464 shares JM, preferred                              .90
     112-1/2 shares Specialty, common                      150.00
     25,000 shares Specialty, preferred                       .90

The IRS estate tax examiner proposed certain adjustments to

Joseph’s taxable estate, including an increase in the per-share
                              - 10 -

value of JM common and preferred stock to $2.25 and $1,

respectively.   The estate agreed to these changes.5

Deficiency Amount

     Cyril died testate on June 8, 1988, in San Francisco,

California.   Donald Isaac Magnin, Cyril’s oldest son, is the

executor of Cyril’s estate, and he filed a timely Federal estate

tax return.   The estate tax return identified the 1951 Agreement

and stated that Cyril received adequate and full consideration

under the Agreement.

     In the notice of deficiency, respondent determined a

deficiency of $1,921,528 in Federal estate tax.   The deficiency

was based in large part on respondent’s determination that the


     5
      The parties stipulated that the estate and gift tax returns
and the document setting forth the agreed-upon adjustments
related to Joseph’s estate tax return were “authenticated and are
admissible in evidence”. Rule 91(d) requires that “Any objection
to all or any part of a stipulation should be noted in the
stipulation, but the Court will consider any objection to a
stipulated matter made at the commencement of the trial or for
good cause shown made during the trial.” Additionally, “It is a
fundamental rule of evidence that an objection not timely made is
waived.” United States v. Jamerson, 549 F.2d 1263, 1266-1267
(9th Cir. 1977); Fed. R. Evid. 103(a)(1). In its reply brief,
the estate argues for the first time that the document setting
forth the agreed-upon adjustments related to Joseph’s estate tax
return is inadmissible to establish values under Rule 143(a) and
Fed. R. Evid. 408. By failing to make a timely and specific
objection on the basis of Fed. R. Evid. 408, the estate waived
its right to contest the admission of Joseph’s estate tax
settlement on that ground. See Gilbrook v. City of Westminster,
177 F.3d 839, 859 (9th Cir. 1999). Furthermore, the estate’s
objection to a stipulated document which the estate agreed was
authenticated and admissible is untimely, and we decline to
consider it. See Rule 91(d); Pan Am. Acceptance Corp. v.
Commissioner, T.C. Memo. 1989-440.
                               - 11 -

value of the three trusts created in 1971, in which Cyril

retained a life interest, was includable in the gross estate.      In

the notice of deficiency, respondent determined that the value of

the three trusts includable in the gross estate was $3,789,849,

which was calculated by taking the value of the three trusts at

the appropriate valuation date ($3,833,727), less the value of

consideration received by Cyril in connection with the 1951

Agreement ($43,878).6

     In an amended answer, respondent asserted a deficiency in

estate tax of $2,079,213, based in part on respondent’s revised

determination that Cyril received no consideration for the

transfers and that the entire value of the three trusts was

includable in the gross estate.    Respondent’s assertion in the

amended answer that there was no consideration increased the

original deficiency.    We held that the issue of whether the

consideration was less than $43,878 was a new matter, and that

the burden of proof was on respondent with respect to this issue.

See Estate of Magnin v. Commissioner, T.C. Memo. 1996-25.

     Both parties’ experts used a valuation date of October 31,

1951, to determine the values of the interests exchanged between

Joseph and Cyril.   On brief, respondent argued that the amount of


     6
      The amount includable in the gross estate under sec. 2036
is reduced by the value of any consideration received by the
decedent at the time of the transfer. See sec. 2043(a); Estate
of Magnin v. Commissioner, 184 F.3d 1079, 1081-1082 (9th Cir.
1999); United States v. Past, 347 F.2d 7, 14 (9th Cir. 1965).
                              - 12 -

the consideration received by Cyril was limited to approximately

$30,500, based on the report and testimony of an expert

appraiser, Stephen A. Stewart (Mr. Stewart).   The estate argued

that the consideration received by Cyril was $58,146, based on

the report and testimony of its expert appraiser, Bryan H.

Browning (Mr. Browning).   Mr. Stewart assigned a value of

$244,000 to Cyril’s entire stock interest, $123,000 of which was

allocated to Cyril’s remainder interest.    Mr. Browning assigned a

value of $83,600 to Cyril’s entire stock interest, $42,000 of

which was allocated to Cyril’s remainder interest.

Prior Court Proceedings

     The main issue for decision in this case was whether Cyril’s

1971 transfers in trust with retained life estates were

includable in his gross estate, or whether they were excluded

from the estate because they were bona fide sales for “adequate

and full consideration” within the meaning of section 2036(a).

In our original opinion, we upheld respondent’s deficiency

determination.   Although we found that the 1951 Agreement

contained an element of bargained-for consideration, we noted

that this did not automatically establish adequate and full

consideration within the meaning of section 2036(a).   See Estate

of Magnin v. Commissioner, T.C. Memo. 1996-25; United States v.

Past, 347 F.2d 7, 12 n.2 (9th Cir. 1965).   We held that the

proper calculation of the interest transferred by Cyril required
                                - 13 -

a valuation of the full fee-simple interest in the property

transferred to the trust, not just the remainder interest, and

that Cyril had not received “adequate and full consideration” for

the full fee-simple interest.     We relied on the holding in United

States v. Past, supra, that “adequate and full consideration”

must be given for the value of the entire property interest

transferred to the trust, not just the remainder interest.     Id.

at 12.   Alternatively, we indicated that even if the proper

measure of adequate and full consideration had been the remainder

interest, the estate had not established that Cyril had received

adequate and full consideration for the remainder interest.7    In

our prior opinion, we stated that the proper standard to apply in


     7
      In a footnote, we stated:

          Even if we were to hold that sec. 2036(a) requires
     receipt of adequate and full consideration for only the
     remainder interest, we would find that petitioner has
     not met its burden of proving that the value of the
     interest in Joseph’s stock that Cyril received equaled
     the value of the remainder interest transferred. We
     conclude, infra, that the value of the interest
     received by Cyril is $43,878. The value of the
     remainder interest transferred by Cyril is $42,000
     according to * * * [the estate] and $122,997.64 under
     respondent’s calculations. These values were
     determined after the parties made certain posttrial
     adjustments to their expert reports. Although we need
     not determine the precise value of the remainder
     interest transferred by Cyril, we conclude that it was
     more than $43,878. This conclusion is based on the
     evidence, including the expert witnesses’ opinions and
     the values placed on JM and Specialty stock in gift and
     estate tax returns filed by Cyril and Joseph between
     1948 and 1953. [Estate of Magnin v. Commissioner, T.C.
     Memo. 1996-25 n.12.]
                               - 14 -

valuing the property interests transferred and received by Cyril

was the hypothetical willing buyer and willing seller standard.

See Estate of Magnin v. Commissioner, T.C. Memo. 1996-25.

     The estate appealed our decision.   The Court of Appeals for

the Ninth Circuit declined to follow its previous holding in

United States v. Past, supra, that “adequate and full

consideration” must be given for the value of the entire property

interest transferred to the trust, not just the remainder

interest, because that case “did not elaborate upon the rule or

evaluate its merit.”    Estate of Magnin v. Commissioner, 184 F.3d

at 1077.    Instead, the Court of Appeals held that “‘adequate and

full consideration’ is measured against the actuarial value of

the remainder interest rather than the full fee-simple value of

the property interest transferred to the trust.”    Id. at 1080;

see also Estate of Wheeler v. United States, 116 F.3d 749, 767

(5th Cir. 1997); Estate of D’Ambrosio v. Commissioner, 101 F.3d

309, 313 (3d Cir. 1996), revg. 105 T.C. 252 (1995).

     The Court of Appeals also discussed our previously mentioned

footnote in which we said that even if the proper measure of full

consideration had been the remainder interest, the estate had not

shown that Cyril received adequate consideration for that

interest.   See Estate of Magnin v. Commissioner, 184 F.3d at

1081.   The Court of Appeals noted that we had discussed the
                               - 15 -

appropriate standard for valuation purposes8 and agreed that the

valuation determination in the notice of deficiency is entitled

to a presumption of correctness.   See id.    However, the Court of

Appeals held that the previously mentioned footnote in our prior

opinion did not provide sufficient analysis for it to review

whether Cyril received less than adequate and full consideration

pursuant to the October 31, 1951, agreement and instructed us to

explain how we determined the value of the consideration that

Cyril transferred and received.    See id.   The Court of Appeals

remanded the case for findings that explain how we determined the

values of the respective property interests both transferred and

received by Cyril.   See id.

                               OPINION

     A decedent’s gross estate generally includes the value of

all property interests transferred by the decedent during his

life in which he retained for his life the right to the

possession, enjoyment, or income from the property.    See sec.

2036(a).9   However, if the property interest transferred by the


     8
      In our prior opinion, we held that the value of what Cyril
received should be determined by ascertaining “the price at which
the property would change hands between a willing buyer and a
willing seller, neither being under any compulsion to buy or to
sell and both having reasonable knowledge of relevant facts.”
Estate of Magnin v. Commissioner, T.C. Memo. 1996-25; sec.
20.2031-1(b), Estate Tax Regs.
     9
      Sec. 2036(a) provides, in pertinent part:

                                                      (continued...)
                                   - 16 -

decedent was part of “a bona fide sale for an adequate and full

consideration in money or money’s worth”, then section 2036(a)

will not require inclusion in the gross estate.       Id.   If there is

consideration, but it is not “adequate and full consideration”,

then the property interest transferred by the decedent is

included in his gross estate and an offset is allowed for the

partial consideration received.       Sec. 2043(a);10 Estate of Magnin

v. Commissioner, 184 F.3d at 1081-1082; United States v. Past,

347 F.2d at 14.

     As a result of the 1971 transfers in trust of the proceeds


     9
      (...continued)
          SEC. 2036(a). General Rule.--The value of the
     gross estate shall include the value of all property to
     the extent of any interest therein of which the
     decedent has at any time made a transfer (except in
     case of a bona fide sale for an adequate and full
     consideration in money or money's worth), by trust or
     otherwise, under which he has retained for his life * *
     *

                  (1) the possession or enjoyment of, or the
             right to the income from, the property * * *
     10
          Sec. 2043(a) provides:

          SEC. 2043(a). In General.–-If any one of the
     transfers, trusts, interests, rights, or powers
     enumerated and described in sections 2035 to 2038,
     inclusive, and section 2041 is made, created,
     exercised, or relinquished for a consideration in money
     or money’s worth, but is not a bona fide sale for an
     adequate and full consideration in money or money’s
     worth, there shall be included in the gross estate only
     the excess of the fair market value at the time of
     death of the property otherwise to be included on
     account of such transaction, over the value of the
     consideration received therefor by the decedent.
                               - 17 -

of Cyril’s shares, Cyril retained a life estate within the

meaning of section 2036(a).    Since the 1971 transfers were in

fulfillment of the 1951 Agreement, we must look to the value of

the consideration that Cyril transferred and received on October

31, 1951.   In order to find for the estate, the lifetime

interests in Joseph’s shares received by Cyril must be “adequate

and full consideration” for the remainder interest Cyril was

required to transfer to his children, both interests being valued

as of October 31, 1951.    Estate of Magnin v. Commissioner, 184

F.3d at 1080; see also Estate of Wheeler v. United States, supra

at 767; Estate of D’Ambrosio v. Commissioner, supra at 313.

     A.     Valuation of Stock of JM and Specialty

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

length sales of such stock conducted in the normal course of

business within a reasonable time before or after the valuation

date are the best indicia of market value.    See Duncan Indus.,

Inc. v. Commissioner, 73 T.C. 266, 276 (1979).       However, the

stocks of JM and Specialty were not publicly traded at the time

of the 1951 Agreement, and there is no evidence of sales of stock

of these two companies at any time near October 31, 1951.      In the

absence of arm’s-length sales, the value of closely held stock is

determined indirectly by weighing the corporation’s net worth,

prospective earning power, dividend-paying capacity, and other

relevant factors.    See Estate of Andrews v. Commissioner, 79 T.C.
                               - 18 -

938, 940 (1982); sec. 20.2031-2(f), Estate Tax Regs.      These

factors cannot be applied with mathematical precision; thus, the

weight to be given to each factor must be tailored to account for

the specific facts of the case at hand.    See Messing v.

Commissioner, 48 T.C. 502, 512 (1967).     Additionally, the rights,

restrictions, and limitations of the various classes of stock

must be considered in making valuation determinations.      See

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

Estate of Anderson v. Commissioner, T.C. Memo. 1988-511.      The

factors to be considered are those that an informed buyer and an

informed seller would take into account.    See Hamm v.

Commissioner, 325 F.2d 934, 940 (8th Cir. 1963), affg. T.C. Memo.

1961-347.

       Rev. Rul. 59-60, 1959-1 C.B. 237, has been widely accepted

as setting forth the appropriate criteria to consider in

determining the fair market value of stock of closely held

corporations.    See Estate of Newhouse v. Commissioner, supra at

217.    The following factors, which are virtually identical to

those listed in section 20.2031-2(f), Estate Tax Regs., are to be

considered:

            (a) The nature of the business and the history of
       the enterprise from its inception.

            (b) The economic outlook in general and the
       condition and outlook of the specific industry in
       particular.

            (c) The book value of the stock and the financial
                              - 19 -

     condition of the business.

          (d) The earning capacity of the company.

          (e) The dividend-paying capacity.

          (f) Whether or not the enterprise has goodwill or
     other intangible value.

          (g) Sales of the stock and the size of the block
     of stock to be valued.

          (h) The market price of stocks of corporations
     engaged in the same or a similar line of business
     having their stocks actively traded in a free and open
     market, either on an exchange or over-the-counter.
     [Rev. Rul. 59-60, 1959-1 C.B. at 238-239.]

     Both parties relied on the reports and testimony of expert

witnesses to assign values to the consideration received by Cyril

and the property interest transferred by Cyril.    While expert

opinions may assist in evaluating a claim, we are not bound by

these opinions and may reach a decision based on our own analysis

of all the evidence in the record.     See Helvering v. National

Grocery Co., 304 U.S. 282, 295 (1938); Estate of Newhouse v.

Commissioner, supra.   Where experts offer conflicting estimates

of fair market value, we examine the factors they used and decide

the appropriate weight given to each.    See Casey v. Commissioner,

38 T.C. 357, 381 (1962).   We may accept the opinion of an expert

in its entirety, see Buffalo Tool & Die Manufacturing Co. v.

Commissioner, 74 T.C. 441, 452 (1980), or we may be selective in

the use of any portion, see Parker v. Commissioner, 86 T.C. 547,

562 (1986).   Because valuation necessarily results in an
                              - 20 -

approximation, the valuation figure we determine need not be one

as to which there is specific testimony as long as it is within

the range of values that may properly be arrived at from

consideration of all the evidence.     See Silverman v.

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

1974-285; Estate of Simplot v. Commissioner, 112 T.C. 130, 155

(1999).

     Respondent applied the hypothetical willing buyer and

willing seller standard set forth under section 20.2031-1(b),

Estate Tax Regs., and relied on Rev. Rul. 59-60, supra, to

determine the total value of the stocks of JM and Specialty and

the interests that were transferred and received by Cyril under

the 1951 Agreement.   The estate applied a hypothetical willing

buyer and willing seller standard and relied on valuation

guidelines it felt were reasonably consistent with Rev. Rul. 59-

60, supra, to determine the overall value of JM and Specialty.

However, the estate argues that the reality of the actual

exchange between Cyril and Joseph must be considered for purposes

of applying discounts and control premiums to the actual property

interests transferred and received by Cyril.11


     11
      The estate argues that the consideration received by Cyril
must be measured from his standpoint, not that of a hypothetical
buyer, but at the same time it relies on Mr. Browning’s appraisal
which he indicated at trial was based on a hypothetical willing
buyer and willing seller. The estate seems at times to argue
that its valuation figures would be the same under either
                                                   (continued...)
                              - 21 -

     In the instant case, both parties’ experts determined the

overall value of JM and Speciality using a combination of a

market comparable analysis and a discounted future cash-flow

(DCF) analysis.12

          1.   Respondent’s Expert

     Respondent relied on the report and testimony of an expert

appraiser, Mr. Stewart.   The parties agree that Mr. Stewart

qualifies as an expert for purposes of this case.

     Mr. Stewart determined the value of the property interests

in issue in the following manner.    He determined the values of

the preferred stocks of JM and Specialty by comparing them to

five companies which he felt had similar characteristics.      Mr.

Stewart then valued JM and Specialty using a market approach.        To

determine the overall values of the common stocks under his

market approach, Mr. Stewart subtracted the value he assigned to

the preferred stocks from the values he assigned to JM and

Specialty and then applied a marketability discount.13   Mr.



     11
      (...continued)
standard.
     12
      Throughout their reports, Mr. Stewart and Mr. Browning
chose to round off certain numbers while being specific as to
other numbers. As a result, our analysis of their reports and
the figures we use are generally rounded off with specific
numbers used in certain instances.
     13
      Mr. Stewart did not apply a minority discount because, in
his opinion, the market approach already produces a per-share
value for a minority interest.
                                 - 22 -

Stewart also used an income approach to value JM and Specialty.

After determining the values of JM and Specialty, he subtracted

the value of the preferred stocks and applied discounts for lack

of marketability and for minority interest.      Mr. Stewart gave

equal weight to each valuation in reaching his final valuation

determination.   Mr. Stewart then applied his valuation

determinations of JM and Specialty stocks to the property

interests transferred and received by Cyril to arrive at his

valuation of the interests at issue.

                 i.     Valuation of JM and Specialty

     In applying the market comparable method to value JM, Mr.

Stewart compared JM’s financial performance and position with

five publicly traded companies listed on the New York Stock

Exchange (NYSE).      The companies used were: (1) Allied Stores

Corp.; (2) Marshall Field & Co.; (3) May Department Stores; (4)

Federated Department Stores; and (5) R.H. Macy & Co.       Mr. Stewart

chose these five companies based on such factors as line of

business, geographic location, sales, total assets, market

capitalization, and number of outstanding shares.       All five

companies were department stores which were substantially larger
                                - 23 -

in terms of total assets14 and revenues15 than JM and Specialty,

and the five companies engaged in a broader range of business

activities, including a wider variety of products for sale.

Also, other than one Macy’s store in San Francisco, none of the

five companies had stores located in San Francisco or Reno.       Mr.

Stewart compared JM to the companies using the following

measures: (1) Invested capital to revenue; (2) earnings before

depreciation, interest expense and taxes (EBDIT); and (3) price-

to-book value.    These measures indicated values of the aggregate

minority interest in JM ranging from $906,000 to $1.31 million.

Giving greater weight to the price-to-book measure, Mr. Stewart

determined that JM had an overall value of approximately $1

million.

     In applying the income approach to JM, Mr. Stewart projected

net income 5 years forward from the year ending January 31,

1952.16    Mr. Stewart considered JM’s future sales and earning

potential and then: (1) Projected JM’s sales, expense levels, and


     14
      JM’s total assets at the time of the 1951 Agreement were
approximately $2 million while the comparables used had total
assets ranging from approximately $119 million to $230 million.
Specialty’s total assets were smaller than JM’s.
     15
      JM’s revenues at the time of the 1951 Agreement were
approximately $5 million while the comparables used had revenues
ranging from approximately $223 million to $440 million.
Specialty’s revenues were smaller than JM’s.
     16
      Mr. Stewart used a base year ending after the valuation
date because, in his opinion, that year had more reliable
information than the prior year.
                               - 24 -

depreciation charges for 5 years; (2) estimated working capital

requirements and capital requirements; and (3) derived the

estimated net cash-flow to stockholders equity for each of the 5

years.    The net cash-flow for each of the years was discounted to

present value.   The sixth-year estimated cash-flow was

capitalized to give an indication of the value of the

stockholders equity in JM at the end of the forecast period.       The

residual value of JM was also discounted to present value.     Mr.

Stewart then subtracted projected capital expenditures in

arriving at his valuation of JM.17   On the basis of these

considerations and findings, Mr. Stewart determined that the

overall value of JM under the DCF approach was $675,000.

     Mr. Stewart used the same appraisal procedures to value

Specialty.   In applying the market comparable method, Mr. Stewart

used the same five companies that he used in valuing JM.     The

invested capital to revenue, EBDIT, and price-to-book value

measures indicated values of the aggregate minority interest in

Specialty ranging from $178,000 to $327,000.   Giving greater

weight to the price-to-book value, Mr. Stewart determined that

Specialty had a value of approximately $300,000.   Mr. Stewart

applied the same valuation methodology under the DCF method that



     17
      Mr. Stewart did not subtract projected capital
expenditures in his original report. At trial, Mr. Stewart
admitted that this was an error, and his valuation report was
corrected posttrial to adjust for the error.
                                - 25 -

he used in valuing JM.    On the basis of the considerations and

findings, Mr. Stewart determined that the value of Specialty

under the DCF method was $358,000.

                 ii.   Valuation of JM and Specialty Preferred Stock

     Mr. Stewart determined the value of the preferred stocks of

JM and Specialty by analyzing data relating to dividends paid by

the same five companies he used in valuing JM and Specialty

because he believed they had similar preferred stock

characteristics (such as paid dividends, dividends cumulative,

and voting rights).    Mr. Stewart concluded that an investor

seeking to buy JM preferred stock would require a 6-percent

dividend rate.   This rate was higher than the 4.1-percent to 4.6-

percent rate he felt was required by investors in publicly traded

stocks because of a lack of access to a liquid market and

possible transfer restrictions.    Because JM preferred stock had

an 8-percent dividend rate, Mr. Stewart determined the value to

be 8 percent divided by 6 percent, or $1.33 per share.    On the

basis of the total number of preferred shares, 72,717, Mr.

Stewart determined that the aggregate preferred stock value of JM

was $97,000.

     Mr. Stewart felt that an investor would require an 8-percent

dividend rate with respect to the Specialty preferred stock.

This determination was based on the facts that Specialty

preferred stock was noncumulative, nonvoting, carried a 5-percent
                                - 26 -

dividend rate, had not paid dividends yet, did not have access to

a liquid market, and that the corporation had rights concerning

redemption and first refusal.    Mr. Stewart divided the 5-percent

rate by 8 percent, the yield he believed an investor would

require, and arrived at a value of 62.5 percent of par value.

Specialty preferred stock had a par value of $1 per share; thus,

Mr. Stewart concluded that the value of Specialty preferred stock

was $0.625 per share.    On the basis of the total number of

preferred shares, 100,000, Mr. Stewart determined that the

aggregate preferred stock value of Specialty was $62,500.

                  iii. Valuation of JM and Specialty Common Stock

     To determine the value of JM common stock under the market

approach, Mr. Stewart took the value he assigned to JM, $1

million, and subtracted the value he assigned to the JM preferred

stock, $97,000.    This resulted in an aggregate common stock value

of $903,000, before any discounts.       Mr. Stewart then applied a

35-percent lack of marketability discount to this figure and

determined a value of $585,000 for the total common stock value

of JM.18   Mr. Stewart divided the total common stock value of

$585,000 by the number of outstanding common shares, 182,457, and

determined a value of $3.21 per share for JM common stock.

     Mr. Stewart determined the value of JM common stock under


     18
      Mr. Stewart did not apply a minority discount because, in
his opinion, the market approach already produces a per-share
value for a minority interest.
                              - 27 -

the DCF method, before marketability and minority discounts, to

be $578,000, or $3.17 per share.19    This determination was made

by taking the value he assigned to JM under the income approach,

$675,000, and subtracting the value he assigned to the JM

preferred stock, $97,000.   Mr. Stewart then applied a 20-percent

minority discount based on studies of control premiums and

consideration of the value control would have had specifically in

JM.   Studies of control premiums were used because, in Mr.

Stewart’s opinion, a minority discount equals the algebraic

complement of a control premium.     Mr. Stewart then applied a 35-

percent lack of marketability discount, yielding an aggregate JM

common stock value of $300,000, or $1.64 per share.

      Mr. Stewart gave approximately equal weight to the market

approach and the income approach, which results in an aggregate

value of JM common stock of $440,000, or $2.41 per share.

      To determine the value of the Specialty common stock under

the market approach, Mr. Stewart took the overall value he


      19
       In the proposed findings of fact, respondent states that
the prediscount value of the aggregate JM common stock on a
minority basis is $568,000, instead of the $578,000 as listed in
Mr. Stewart’s valuation findings. Respondent used the $568,000
figure in determining a price per share of $3.11. This error was
most likely due to the fact that Mr. Stewart adjusted his figures
posttrial to correct an error in not subtracting projected
capital expenditures in determining the values of JM and
Specialty stocks under the income approach. We rely on the
figures as set forth in Mr. Stewart’s findings and note that
respondent’s computations appear to be based on an error in
incorporating Mr. Stewart’s adjusted figures into respondent’s
brief.
                                 - 28 -

assigned to Specialty, $300,000, and subtracted the value he

assigned to the Specialty preferred stock, $62,500.   Mr. Stewart

then applied a 35-percent lack of marketability discount to this

figure and determined a value of $155,000 for the total common

stock of Specialty.20   Mr. Stewart applied the number of

outstanding shares, 1,000, and determined a value of $155 per

share for Specialty common stock.

     Mr. Stewart determined that the value of Specialty common

stock under the DCF method, before marketability and minority

discounts, was $295,000.   This determination was made by taking

the value he assigned to Specialty under the income approach,

$358,000, and subtracting the value he assigned to the Specialty

preferred stock, $63,000.21   Mr. Stewart applied a 20-percent

minority discount and a 35-percent lack of marketability

discount, yielding an aggregate Specialty common stock value of

$150,000, or $150 per share.22

     Mr. Stewart gave approximately equal weight to the market

approach and the income approach, thereby determining the



     20
      Mr. Stewart did not apply a minority discount because, in
his opinion, the market approach already produces a per-share
value for a minority interest.
     21
      In his valuation of Specialty common stock, Mr. Stewart
rounded the value he assigned to Specialty preferred stock,
$62,500, up to $63,000.
     22
      Mr. Stewart rounded this number down from the $153,000
figure that application of the discounts yields.
                                 - 29 -

aggregate value of the Specialty common stock to be $152,000, or

$152 per share.

                  iv.   Valuation of JM Stock Options

     Mr. Stewart determined that the value of the JM common stock

held by Joseph and subject to an option by Cyril should be

allocated between Joseph and Cyril.       Mr. Stewart allocated the $1

option price to Joseph.     Mr. Stewart then subtracted the $1

option price from the value he placed on the JM common stock,

$2.41, and allocated $1.41 per share to Cyril for the JM common

stock subject to the option.     With respect to the Nichols

options, Mr. Stewart did not determine that any portion of the

value of the stock should be apportioned to Cyril.      Respondent

has not assigned a value to the Nichols options, nor has

respondent argued that the Nichols options must be considered in

determining the value of the interest transferred by Cyril.23

                  v.    Value of Consideration Received by Cyril

     On brief, respondent argues that the amount of the

consideration received by Cyril was limited to approximately

$30,500,24 based on the report and testimony of Mr. Stewart.



     23
      Any value assigned to these options would result in a
larger interest being transferred by Cyril per the 1951 Agreement
and would enlarge any disparity between the remainder interest he
transferred and the consideration he received from Joseph.
     24
      In the amended answer, respondent argued that Cyril
received no consideration, within the meaning of sec. 2036, for
the interest he transferred to his children.
                                - 30 -

Respondent determined this amount by first multiplying the stock

interests Joseph held in JM and Specialty by the values per share

that Mr. Stewart determined in his report.    The following chart

summarizes these calculations:

Entity          No. of Shares        Per Share Value      Total Value
JM:
Common               32,490               $2.41            $78,301
Preferred            21,464                1.33             28,547
Common option        18,158                1.00             18,158

Specialty:
Common                  112.5            152.00             17,100
Preferred            25,000                 .625            15,625
 Total                                                     157,731

Mr. Stewart then used a factor for calculating a life interest of

a 52-year-old male to take effect upon the termination of the

life of an 83-year-old male.    Mr. Stewart applied this life-

interest factor of .36380 to the $158,000 figure he determined to

be the value of Joseph’s stock interests in JM and Specialty,

yielding a total life interest amount of $57,000.      Mr. Stewart

then divided this number in half because Cyril had received only

a 50-percent life interest in Joseph’s stock.      Mr. Stewart, in

recognizing that Cyril had obtained voting control over 100

percent of Joseph’s stock, applied a right-to-vote value of 7

percent on the other 50 percent of stock Joseph transferred,

$28,500, and arrived at a value of approximately $2,000 for

voting rights in 50 percent of Joseph’s stock.      Mr. Stewart used

the 7-percent figure based on valuation publications which

suggest that voting rights for minority interests are accorded
                                   - 31 -

little or no value unless they are significant.       Mr. Stewart

added the 50-percent life-income interest, $28,500, to the voting

rights interest in the other 50 percent of Joseph’s stock,

$2,000, to determine an overall value of approximately $30,500.

                  vi.   Value of Remainder Transferred by Cyril

     Respondent assigns a total value of $244,000 to Cyril’s

entire stock interests, of which $123,000 is allocated to the

remainder interest transferred by Cyril.      The following chart

summarizes how respondent determined the value of Cyril’s entire

stock interest:

Entity            No. of Shares         Per Share Value    Total Value
JM:
Common                  75,044               $2.41          $180,856
Preferred               11,035                1.33            14,677
Common option           18,158                1.41            25,603

Specialty:
Common                      47.5            152.00             7,220
Preferred               25,000                 .625           15,625
 Total                                                       243,981

Mr. Stewart applied a remainder factor of .50413 to the $244,000

figure he determined to be the value of Cyril’s entire stock

interests in JM and Specialty as of October 31, 1951, yielding a

remainder interest amount of $123,000.      Thus, Mr. Stewart

determined that the value of the property interest transferred by

Cyril as of October 31, 1951, was $123,000.

          2.      The Estate’s Expert

     The estate relied on the report and testimony of its expert

appraiser, Mr. Browning.     The parties agree that Mr. Browning
                              - 32 -

qualifies as an expert for purposes of this case.

     Mr. Browning determined the values of the property interests

in issue in the following manner.   Mr. Browning, using a

combination of market and income approaches, determined the

business enterprise values25 of JM and Specialty and then

subtracted debt values to arrive at the total proportional equity

values of the companies.   Mr. Browning separated the equity

values into preferred and common equity and adjusted for

discounts relating to lack of marketability and liquidity, and

minority interest considerations.   Mr. Browning then applied his

valuation determinations of JM and Specialty stocks to the

property interests transferred and received by Cyril, adjusting

for the control value he believed Cyril received in connection

with JM, in order to value the interests at issue.

               i.   Valuation of JM and Specialty

     Mr. Browning used the market comparable and the discounted

cash-flow methods of valuation to determine the value of JM.    Mr.

Browning compared JM with the following companies: (1) City of

Paris; (2) Emporium Capwell Co.; (3) Roos Bros., Inc.; and (4)

Western Department Stores.   All four companies were publicly

traded, though not on the NYSE, had stores located in the San

Francisco area, and were closer in size in terms of total


     25
      Mr. Browning defines “business enterprise value” as “the
total investment value of a firm which is partitioned into debt
and equity values.”
                               - 33 -

assets26 and revenues27 than the companies used by Mr. Stewart.

Mr. Browning compared JM to the other companies using debt-free

earnings, earnings before interest and taxes (EBIT), and earnings

before interest, taxes, depreciation, and amortization (EBITDA).

These measures indicated a business enterprise value of JM

ranging from $500,000 to $800,000.      On the basis of this range,

Mr. Browning determined that the total business enterprise value

of JM was $650,000.

     In applying the income approach to JM, Mr. Browning used a

10-year projection period beginning November 1, 1951.     Mr.

Browning considered JM’s projected sales, cost of sales,

operating expenses, depreciation, taxes, capital expenditures,

and working capital changes.   After discounting projected cash-

flows and residual value, Mr. Browning determined that the total

business enterprise value of JM was $660,000.

     After reviewing the analyses and available information, Mr.

Browning determined that the total business enterprise value of

JM was $655,000.   Mr. Browning then subtracted the debt value to

determine the equity value of JM.    On the basis of the present


     26
      JM’s total assets at the time of the 1951 Agreement were
approximately $2 million, while the comparables used had total
assets ranging from approximately $7.6 to 38 million.
Specialty’s total assets were smaller than JM’s.
     27
      JM’s revenues at the time of the 1951 Agreement were
approximately $5 million, while the comparables used had revenues
ranging from approximately $13.2 million to $57.8 million.
Specialty’s revenues were smaller than JM’s.
                              - 34 -

value of future interest and principal payments, Mr. Browning

determined that JM had a debt value of $220,000 as of January 31,

1951.   Mr. Browning subtracted the debt value from the total

business enterprise value, yielding a total equity value of JM of

$435,000 as of October 31, 1951.

     The appraisal procedures used by Mr. Browning to value

Specialty were the same as those used to value JM.   In applying

the market approach to value Specialty, Mr. Browning used the

same four companies that he used in valuing JM.   The debt-free

earnings, EBIT, and EBITDA measures indicated a business

enterprise value of Specialty ranging from $160,000 to $180,000.

On the basis of this range, Mr. Browning determined that the

total business enterprise value of Specialty was $170,000.    Mr.

Browning then applied the same appraisal procedures that he used

in valuing JM under the income approach.   On the basis of the

considerations and findings, Mr. Browning determined that the

total business enterprise value of Specialty under the income

approach was $230,000.

     After reviewing the analyses and available information, Mr.

Browning determined that the total business enterprise value of

Specialty was $200,000.   Mr. Browning determined that Specialty

had no debt outstanding as of October 31, 1951; thus, he valued

the total equity of Specialty at $200,000.
                                - 35 -

          ii.     Valuation of JM and Specialty Preferred Stock

     Mr. Browning determined the values of the preferred stocks

of JM and Specialty in the following manner.    He divided the

annual dividend rate by a market dividend yield rate that he felt

was consistent with the risk and return characteristics of the

preferred stock.    Mr. Browning then multiplied this figure by the

number of preferred shares outstanding.    Finally, he applied a

marketability and liquidity discount.    JM’s annual dividend rate

was 8 percent.    To determine an appropriate market dividend yield

rate, Mr. Browning looked at two companies, City of Paris and

Emporium Capwell Co., and concluded that 8 percent was the

appropriate market dividend yield rate.    Using the formula

described above, Mr. Browning determined an aggregate JM

preferred stock value of $72,717 (8 percent divided by 8 percent,

multiplied by 72,717 outstanding preferred shares).    Mr. Browning

applied a 5-percent discount for lack of marketability and

liquidity, resulting in a value of $69,081 for the JM preferred

stock or $.95 per share.

     Mr. Browning determined the value of the preferred stock of

Specialty by taking the preferred stock’s par value and applying

discounts for marketability and liquidity, and minority interest

considerations.    Mr. Browning did not include the dividend rates

in his calculations because no dividends were ever paid prior to

1951, and the dividends were noncumulative without preferred
                                - 36 -

dividend accruals.    The par value of Specialty preferred stock,

$1, multiplied by the number of outstanding shares, 100,000,

yielded a prediscount value of $100,000.    Mr. Browning applied a

marketability and liquidity discount of 35 percent and a minority

interest discount of 25 percent based on lack of dividend

distributions, a long-term investment holding period, and

minority shareholder interest positions.    Mr. Browning combined

the two percentages and applied a 60-percent discount, resulting

in a value for the Specialty preferred stock of $40,000, or $.40

per share.

                  iii. Valuation of JM and Specialty Common Stock

     The common equity values for JM and Specialty were

calculated by subtracting the total preferred stock values from

the total equity values and then applying discounts for

marketability and liquidity, and minority interest

considerations.    The total preferred stock values of JM and

Specialty, $69,000 and $40,000, were subtracted from the total

equity values, $435,000 and $200,000, which produced prediscount

common equity values of $366,000 and $160,000, respectively.    Mr.

Browning selected a 35-percent lack of marketability and

liquidity discount for the common equity of JM and Specialty

based on considerations that the companies had low collateral

values, high industry and customer concentration, transaction

costs, a relatively small shareholder base, and a minority
                               - 37 -

interest position.    Mr. Browning selected a 25-percent minority

interest discount for the common equity of JM and Specialty based

on the considerations that no dividends were paid before 1951, no

dividends were expected to be paid, and that the shareholders

were expected to have a long liquidation period before they could

sell their shares.    Mr. Browning combined the discount rates and

applied a 60-percent discount to the common equity value of JM

and Specialty, resulting in values of $146,000 and $64,000,

respectively.   These values yielded per-share values of $.80 for

JM common stock and $64 for Specialty common stock.

                iv.   Valuation of JM Stock Options

     Mr. Browning determined that the JM common stock held by

Joseph and subject to an option by Cyril did not have any value

because he valued the JM common stock at $.80 per share and the

option price was $1 per share.    If the per-share value had

exceeded the option price, then Mr. Browning argues that the

option would have been exercised.    Because the options were not

exercised, Mr. Browning concluded that they did not have any

value as of October 31, 1951.28   With respect to the Nichols

options, Mr. Browning did not determine that any portion of the

value of the stock should be apportioned to Cyril.    The estate

has not argued that the Nichols options must be considered in



     28
      Note, however, that the estate’s brief alleges that Cyril
did not have the money necessary to exercise the options.
                                - 38 -

determining the value of the interest transferred by Cyril, nor

has it assigned any value to the Nichols options.29

                 v.   Value of Consideration Received by Cyril

     Mr. Browning determined the value of the consideration

received by Cyril based upon control value and income value.30

The estate took the total equity value of JM, $435,000, and

applied a 40-percent control premium based on the fact that

Joseph’s shares, constituting 28.26 percent of the voting power

in JM, when combined with Cyril’s shares, constituting 33.73

percent of the voting power of JM, represented 61.99 percent of

the voting power in JM.   This resulted in a $174,000 total

control value.   The estate then multiplied the total control

value by 62 percent, Cyril’s total voting control percentage as a

result of the 1951 Agreement.    This gave Cyril a total control

value of $107,880.    Because Cyril did not receive voting control

until after Joseph’s death, the estate deducted Joseph’s life

estate to derive the control value received by Cyril.    This was

accomplished by taking the total minority interest value in JM,



     29
      Any value assigned to these options would result in a
larger interest being transferred by Cyril per the 1951 Agreement
and would enlarge any disparity between the remainder interest he
transferred and the consideration he received from Joseph.
     30
      In his appraisal, Mr. Browning based his valuation of the
consideration received by Cyril on the assumption that Cyril
received outright ownership of Joseph’s shares. The estate
corrected its calculation posttrial and submitted revised
valuation calculations for the consideration received by Cyril.
                                - 39 -

$215,000,31 multiplying it by Joseph’s ownership interest

percentage of 28.3 percent, and then applying a life interest

factor of .14123 based on Joseph’s life expectancy.    This yielded

a life interest value for Joseph of $8,593, which was then

subtracted from Cyril’s total control value of $107,880.    The

estate further adjusted Cyril’s life interest in control value

based on the fact that Cyril would have only a minority interest

in JM for Joseph’s lifetime.    This adjustment was made by taking

the values of Cyril’s minority interests in JM common and

preferred stock, $60,000 and $10,500, respectively, and applying

Joseph’s life interest factor of .14123.    This yielded a lifetime

minority interest of $9,957, resulting in an adjusted control

value of $89,330.   Finally, the estate applied Cyril’s life

interest factor to the control value because Cyril received

control only for his lifetime.    In applying a life interest

factor of .49587, the estate concluded that Cyril’s life interest

in control value was $44,296.

     The estate then computed the value of Cyril’s 50-percent

life interest in Joseph’s stock and added this amount to Cyril’s

life interest in control value.    The following chart summarizes

the estate’s calculations:




     31
      On a minority interest basis, the JM common stock was
valued at $146,000 and the JM preferred stock was valued at
$69,000.
                                  - 40 -

                           Joseph’s Percentage   Income Life         Total
Entity       Net Value     Ownership Interest    Benefit Factor      Value
JM:
Common       $146,000              27.8%            50%   .35464    $7,197
Preferred      69,000              29.5%            50%   .35464     3,609

Specialty:
Common         64,000              11.2%            50%   .35464     1,271
Preferred      40,000              25.0%            50%   .35464     1,773
 Total                                                              13,850

In adding Cyril’s life interest in control value, $44,296, to the

value of the 50-percent life interest received, $13,850, the

estate concluded that the total consideration received by Cyril

as of October 31, 1951, was $58,146.

                 vi.     Value of Remainder Transferred by Cyril

     The value of the consideration transferred by Cyril was

calculated by applying his ownership interests to the determined

common and preferred stock values of JM and Specialty and then

deducting his life interest in the companies.        The following

chart summarizes Mr. Browning’s calculations:

                               Cyril’s Percentage     Cyril’s Monetary
Entity       Net Value         Ownership Interest     Ownership Interest
JM:
Common       $146,000                  41.1%              $60,000
Preferred      69,000                  15.2%               10,500

Specialty:
Common         64,000                   4.8%                3,100
Preferred      40,000                  25.0%               10,000
 Total                                                     83,600

Mr. Browning determined the value of the remainder interest by

applying a remainder factor of .50413 to Cyril’s entire stock

interest value of $83,600.      Thus, Mr. Browning determined that
                                  - 41 -

the value of the consideration transferred by Cyril as of October

31, 1951, was approximately $42,000.

       B.   Valuation Standards

       The valuation reports relied on by the experts are

significantly different, both in the application of common

valuation techniques and their assumptions regarding the buyer

and seller of the property interests.      The most notable

difference is in the experts’ application of discounts and

premiums.    Discounts for lack of marketability and lack of

control are conceptually distinct and are well accepted by the

courts in cases involving the value of stock of closely held

corporations.    See Estate of Newhouse v. Commissioner, 94 T.C. at

249.    The distinction between the two discounts is succinctly

stated in Estate of Andrews v. Commissioner, 79 T.C. at 953:

       The minority shareholder discount is designed to
       reflect the decreased value of shares that do not
       convey control of a closely held corporation. The lack
       of marketability discount, on the other hand, is
       designed to reflect the fact that there is no ready
       market for shares in a closely held corporation. * * *

While the appropriate amount of discount to apply in each case is

a question of fact, it is unreasonable to argue that no discount

should be applied to a minority interest in a closely held

corporation.    See Estate of Newhouse v. Commissioner, supra at

249.    However, we have recognized that a discount may not apply

in situations where a minority block of stock has “swing vote

characteristics”.    Estate of Winkler v. Commissioner, T.C. Memo.
                             - 42 -

1989-231; see also Estate of Simplot v. Commissioner, 112 T.C. at

176-179.

     Control is an element which must be taken into account for

purposes of determining the fair market value of corporate stock,

over and above the value attributable to the corporation’s

underlying assets using traditional valuation methodologies.    See

Philip Morris, Inc. v. Commissioner, 96 T.C. 606, 628 (1991),

affd. 970 F.2d 897 (2d Cir. 1992).    The rationale for applying a

control premium is:

     The payment of a premium for control is based on the
     principle that the per share value of minority
     interests is less than the per share value of a
     controlling interest. A premium for control is
     generally expressed as the percentage by which the
     amount paid for a controlling block of shares exceeds
     the amount which would have otherwise been paid for the
     shares if sold as minority interests * * * [Estate of
     Salsbury v. Commissioner, T.C. Memo. 1975-333; citation
     omitted.]

     Before analyzing the positions of each party, we note the

facts that: (1) Cyril had a higher percentage of voting control

in JM than Joseph prior to the 1951 Agreement, and Cyril’s total

shares were worth more outright under either party’s valuation

standards; (2) Cyril received only a life estate in one-half of

Joseph’s shares, although he obtained voting control of all of

Joseph’s shares; (3) Cyril was required to transfer his shares to

his children on his death and could not dispose of the shares

during his lifetime for his own personal gain; and (4) under the

1951 Agreement, Joseph agreed to will his shares to Cyril’s
                              - 43 -

children and those shares, coupled with the shares Cyril was

required to leave to his children under the 1951 Agreement,

represented voting control of JM.

     Respondent employed a fair market value approach and

determined the value of the interests transferred and received by

Cyril under a hypothetical willing buyer and willing seller

standard.   Fair market value for Federal estate and gift tax

purposes is defined as “the price at which the property would

change hands between a willing buyer and a willing seller,

neither being under any compulsion to buy or to sell and both

having reasonable knowledge of relevant facts.”     United States v.

Cartwright, 411 U.S. 546, 551 (1973); Snyder v. Commissioner, 93

T.C. 529, 539 (1989); sec. 20.2031-1(b), Estate Tax Regs; sec.

25.2512-1, Gift Tax Regs.   The standard is objective; it uses a

hypothetical willing buyer and willing seller.    See Propstra v.

United States, 680 F.2d 1248, 1251-1252 (9th Cir. 1982); Estate

of Newhouse v. Commissioner, supra at 218.     The willing buyer and

willing seller are presumed to be dedicated to achieving the

maximum economic advantage, and the views of each hypothetical

person must be taken into account.     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, supra at 218;

Estate of Kaufman v. Commissioner, T.C. Memo. 1999-119.     The
                              - 44 -

individual characteristics of the hypothetical buyer and seller

are not necessarily the same as the individual characteristics of

the actual buyer or actual seller.     See Estate of Simplot v.

Commissioner, supra at 152.   However, “the hypothetical sale

should not be constructed in a vacuum isolated from the actual

facts that affect the value of the stock”.     Estate of Andrews v.

Commissioner, supra at 956.

     In valuing the interests transferred and received by Cyril,

the estate assumes that the hypothetical buyer is a person in the

same position as Cyril.   The estate then applies a control

premium to Joseph’s minority block of shares because they will

allow the hypothetical buyer in the same position as Cyril to

obtain majority voting control of JM.    This is not the proper

application of the willing buyer and willing seller standard as

set forth in the estate and gift tax regulatory provisions and as

interpreted by case law because the willing buyer cannot be the

actual buyer, he must be a hypothetical person.    See Propstra v.

United States, supra at 1251-1252; Estate of Bright v. United

States, supra at 1005-1006; Furman v. Commissioner, T.C. Memo.

1998-157.   The willing buyer and willing seller standard renders

irrelevant the actual buyer and actual seller; however, the other

stockholders are not irrelevant under the standard.    See Estate

of Bright v. United States, supra at 1007.

     The estate relies on Estate of Winkler v. Commissioner, T.C.
                               - 45 -

Memo. 1989-231, in arguing that Joseph’s shares have “swing vote

characteristics” because when combined with the shares of a

hypothetical shareholder in the position of Cyril, that person

would have majority voting control.     The estate’s reliance on

Estate of Winkler v. Commissioner, supra, is misplaced.     In that

case, there were three shareholders with stock interests of 50

percent, 40 percent, and 10 percent, respectively.     The main

issue for decision was whether a minority discount applied for

estate tax purposes of valuing the 10-percent interest.     We held

that the 10-percent interest possessed “swing vote

characteristics” because a hypothetical buyer would be able to

combine with one of the two remaining shareholders to either

effect or block control of the company.     We based our analysis on

a hypothetical buyer, not one holding either the 40-percent or

50-percent interest.   We concluded that the no minority discount

should apply to the 10-percent interest.     The instant case is

distinguishable from Estate of Winkler v. Commissioner, supra.

Cyril held 33.73 percent and Joseph held 28.26 percent of the

voting stock of JM; collectively their shares represented 61.99

percent of the voting power.   The evidence in the record does not

establish the share ownership of the remainder of the stock of

JM.   It has not been established that a hypothetical buyer would

be able to combine with another shareholder to effectuate
                             - 46 -

control;32 thus, Joseph’s stock has not been demonstrated to have

the “swing vote characteristics” described in Estate of Winkler

v. Commissioner, supra.33

          1.   Value of Consideration Received by Cyril

     No calculations were presented by the estate as to the

values of the interests if a hypothetical buyer would not gain

control as a result of the transfer by Joseph.   Accordingly, the

estate has failed to present sufficient evidence to establish

that the values it assigns to the interests at issue are reliable

and accurate under the willing buyer and willing seller standard

set forth in the estate and gift tax regulatory provisions.

     Although it claims to have used the hypothetical willing

buyer and willing seller standard, in reality, the estate applied

an actual buyer and actual seller standard because it based its

valuation on parties in identical positions as Joseph and Cyril.

It chose to look at the actual transaction and the logical

inference that Cyril would have paid more for Joseph’s minority-

interest-voting rights because they would give Cyril voting

control when added to his existing minority-interest-voting


     32
      According to the estate, Cyril lacked funds to purchase
Joseph’s 28.26 percent of voting stock. The estate states on
brief that Cyril lacked the funds to exercise his option to
purchase Joseph’s 18,158 shares at $1 per share.
     33
      This Court did not apply a control premium for voting
control in a similar situation where the stock being valued had
“‘swing vote’ potential”. Estate of Simplot v. Commissioner, 112
T.C. 130, 176-179 (1999).
                               - 47 -

rights.    In applying such a standard, the estate determined that

the value of the consideration received by Cyril was

approximately $58,000, of which approximately $44,000 consisted

of control value received by Cyril.

     The estate argues that a control premium must be applied in

this circumstance because an actual, bargained-for transaction

occurred in which Cyril obtained control of JM.     But even if we

were to accept the estate’s argument, its application of its own

“actual buyer-seller” test is flawed.     First, the control premium

and control value analysis, even if appropriate, were incorrectly

applied.   Mr. Browning applied the control value to the combined

total of Cyril’s share ownership after the 1951 Agreement.     Thus,

Mr. Browning took into account shares already owned by Cyril in

valuing control.   If Mr. Browning had applied his control value

analysis to the percentage of shares owned only by Joseph, 28.26

percent, and not the combined percentage of the shares of Joseph

and Cyril, 61.99 percent, the value of the consideration received

by Cyril would have been approximately $29,000 using Mr.

Browning’s valuation methodology.34     Also, Mr. Browning’s support


     34
      In his control value analysis, Mr. Browning determined a
control value in JM of $174,000. He determined that Cyril was
receiving 61.99 percent of this control value, or $107,880,
before factoring in the life interests of Joseph and Cyril. If
one uses the 28.26-percent figure which represents the actual
percentage of shares that Cyril was receiving an interest in from
Joseph, one arrives at a control value of $49,172, before
factoring in the life interests of Joseph and Cyril. After
                                                   (continued...)
                              - 48 -

for the 40-percent control premium is derived from studies of

control premiums in the 1980's, and he did not establish that

such a reference was reliable for purposes of a transaction

occurring in 1951.

     The estate also failed to address the issue of control in

considering what Cyril transferred in exchange for Joseph’s

shares.   Cyril bound himself to transfer a remainder interest in

his shares to his children, and those shares, when combined with

the shares transferred at death by Joseph to Cyril’s children,

constituted voting control of JM.   The estate’s expert agreed at

trial that he might have been inconsistent in his approach.   The

estate did not consider the fact that Joseph bargained for and

received from Cyril the right to dispose of control of JM after

Cyril’s death.   Joseph was ensuring that his grandchildren

received control of JM upon Cyril’s death.   If a control premium

applies for purposes of valuing what Cyril received from Joseph,

then it follows, in the facts of this case, that a control

premium should also apply when valuing the interest Cyril

transferred to, or at the direction of, Joseph.   The application



     34
      (...continued)
applying the same life interest factors used in Mr. Browning’s
initial analysis, the control value received by Cyril is only
$15,185, as opposed to the $44,296 determined by Mr. Browning.
In applying the value determined by Mr. Browning for a 50-percent
interest in Joseph’s shares, $13,850, the result using only
Joseph’s percentage ownership for control value purposes is
$29,035.
                              - 49 -

of a control element on both sides of the transaction would

significantly increase the value of the remainder interest

transferred by Cyril because a control element would attach to

the remainder interest in Cyril’s shares.   The number of shares

transferred by Cyril was larger than the number of shares

received by Cyril, the full fee-simple interest in the stock was

transferred by Cyril at his death, and Cyril’s life estate factor

in Joseph’s shares and the remainder factor in the stock he

transferred at death were approximately equal.   The estate

presented no revised calculations or other evidence establishing

that the value transferred by Cyril, when adjusted for this

control element, was less than the consideration received from

Joseph.   The estate has failed to present sufficient evidence to

establish that the values it assigns to the interests at issue

are reliable and accurate under an actual buyer and actual seller

standard.

     The valuation methodology of Mr. Browning was questionable

in other areas as well.   In determining the values of JM common

stock and Specialty common and preferred stocks, Mr. Browning

applied a lack of marketability and liquidity discount and a

minority interest discount on a combined basis, instead of

individually.   For example, Mr. Browning added together the 35-

percent marketability and liquidity discount and the 25-percent

minority discount to get a combined discount of 60 percent, which
                                - 50 -

he then applied to the values before him.      As we noted earlier,

discounts for marketability and minority interest are separate

and distinct, and this fact must be taken into account when such

discounts are applied in order to avoid distorting the valuation.

While expert reports and the courts sometimes apply combined

discount rates to determine the value of stock, this is a

questionable procedure to use if specific rates are determined

for each discount and then added together to reach the combined

rate.     See Pratt, et al., Valuing a Business: The Analysis and

Appraisal of Closely Held Companies 314 (3d ed. 1996).      In order

to ensure accuracy, the minority interest discount should be

applied first and then the marketability and liquidity discount

should be applied to this figure.35      Had this been done, the

discounts would have yielded a combined discount rate of 51.25

percent.36    Mr. Browning also applied a minority discount to the

values based on his market comparable analysis, although he

agreed at trial that traditional appraisers believe that the

market approach yields a valuation on a minority basis because


     35
      The result is the same if the discounts are applied in the
reverse order. See Estate of Jung v. Commissioner, 101 T.C. 412,
434 n.7 (1993).
     36
      For example, if a 25-percent minority discount is applied
to a stock value of $100, the resulting value is 100 times 75
percent, or $75. Application of a 35-percent marketability
discount to the new value of $75 results in $75 times 65 percent,
or a value after marketability and minority discounts of $48.75.
Thus, the combined discount rate is 51.25 percent, not 60
percent.
                              - 51 -

the market approach is based on trading done by minority

stockholders.   Mr. Browning testified that he applied a minority

discount in this situation because if he did not then his market

approach generally yielded a value higher than the value

determined under his DCF approach.     We do not find Mr. Browning’s

explanation for applying a minority discount in this situation to

be satisfactory because it is not based on valuation standards,

but rather on the fact that he is adjusting his valuation simply

to yield a result closer to that produced under his DCF approach.

     The value of the consideration received by Cyril was

determined in the notice of deficiency to be $43,878.    This

determination is entitled to the presumption of correctness.    See

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

of Magnin v. Commissioner, 184 F.3d at 1081; Estate of Jung v.

Commissioner, 101 T.C. 412, 423 (1993).     In order to overcome the

presumption, the estate must introduce some substantial evidence

which shows that respondent was wrong.    See Rockwell v.

Commissioner, 512 F.2d 882, 885 (9th Cir. 1975), affg. T.C. Memo.

1972-133; Estate of Gilford v. Commissioner, 88 T.C. 38, 51

(1987).   The burden of showing that the valuation determinations

in the notice of deficiency are incorrect “is a burden of

persuasion; it requires * * * [the estate] to show the merits of

* * * [its] claim by at least a preponderance of the evidence.”

Rockwell v. Commissioner, supra at 885; Estate of Gilford v.
                              - 52 -

Commissioner, supra at 51; see also Estate of Simplot v.

Commissioner, 112 T.C. at 149-150.

     The estate’s valuations of the interests transferred and

received by Cyril contain errors under both a hypothetical

standard and an actual standard.    These errors cast doubt on the

estate’s overall valuation of the interests in issue, and we

accord little weight to the estate’s valuations in reaching our

decision.   Accordingly, the estate has failed to carry its burden

of establishing that the value of the consideration received by

Cyril was different from the value determined in the notice of

deficiency.

     Respondent bears the burden of proving any increases in the

deficiency asserted in the amended answer (i.e., that the

consideration received by Cyril was less than $43,878).      See Rule

142(a); Estate of Bowers v. Commissioner, 94 T.C. 582, 595

(1990).   Respondent presented evidence and testimony in support

of the position that the value of the consideration was

approximately $30,500.

     Respondent partially relied on Mr. Stewart’s DCF analysis in

valuing the interests at issue.    After trial, Mr. Stewart

corrected his error of not subtracting projected capital

expenditures in his original report, but it is troubling that

such a large mistake was made in the first place.    Also, Mr.

Stewart used a valuation date of January 31, 1952, instead of

October 31, 1951, because he claims that he would have had to

rely on information that was 9 months old.    While events
                                - 53 -

occurring after the valuation date are relevant evidence of value

if they are foreseeable as of the valuation date, see Estate of

Jung v. Commissioner, supra at 431, we note that the evidence

before us is limited with respect to the impact of such an

analysis.37    Finally, we observe that both experts’ valuations of

what Cyril received were made almost 50 years after the fact, and

the differences are within the general range of the amount

determined in the notice of deficiency.

     The evidence presented by respondent has not persuaded us

that the value of the consideration received by Cyril was less

than the value determined in the notice of deficiency.

Accordingly, we hold that the value determined in the notice of

deficiency is the correct value of the consideration received by

Cyril.

          2.     Value of Remainder Interest Transferred by Cyril

     If the value of the remainder interest transferred by Cyril

was equal to $43,878 or of approximately the same value, then

Cyril received “adequate and full consideration” for his

remainder interest.    However, if the value of the remainder

interest was not approximately equal to $43,878, then section

2036(a) will apply and the full amount of the three trusts must

be included in Cyril’s gross estate.     The notice of deficiency


     37
      The parties agree that the Christmas holiday season
represented a large amount of JM’s sales. However, the extent to
which such a factor influences the results under the DCF analysis
using either valuation date has not been established by the
evidence in the record.
                              - 54 -

does not contain a valuation determination of the remainder

interest transferred by Cyril.

     The notice of deficiency determined that the amount

includable in the gross estate was the value at the time of

Cyril’s death of the 1971 trusts in which Cyril retained a life

interest, minus the value of the consideration received by Cyril

in connection with the October 31, 1951, agreement.   The estate

bears the burden of proving error in respondent’s determination.

See Rule 142(a); Estate of Shafer v. Commissioner, 80 T.C. 1145,

1159 (1983), affd. 749 F.2d 1216 (6th Cir. 1984).   In order to

meet this burden, the estate must show that Cyril received

adequate and full consideration under the 1951 Agreement.

     Respondent assigns a value of $244,000 to Cyril’s entire

stock interest, of which $123,000 is allocated to the remainder

interest transferred by Cyril.   The estate assigns a value of

$83,600 to Cyril’s entire stock interest, of which $42,000 is

allocated to the remainder interest transferred by Cyril.

     As previously discussed, the estate’s valuations contained

errors under both a hypothetical standard and an actual standard,

and the values it assigns to the respective interests are

entitled to little weight.   In addition to the problems we

identified in its control value analysis, the estate’s valuations

are questionable in its application of discounts to the JM and

Specialty stocks.   On the basis of the evidence presented by the

estate, we find that it has not met its burden of proof.    Our

analysis of the evidence in the record leads us to conclude that
                               - 55 -

the correct value is more in line with respondent’s

determination.

     Although we do not find them to be correct in their

entirety,38 respondent’s analysis and expert were more reliable

and reflected a better approximation of the values of the

interests at issue.   Mr. Stewart accurately applied the

hypothetical willing buyer and willing seller test and was

consistent in valuing the stock interests transferred and

received by Cyril on a minority basis.    Additionally, the

marketability and minority discounts were applied separately, and

no minority discount was applied under the market approach.

     Respondent’s valuation of the underlying shares is also

supported by the estate and gift tax returns filed by Joseph and

Cyril and the document setting forth the agreed-upon adjustments

relating to Joseph’s estate tax return.    In Joseph’s 1950 gift

tax return, he valued JM common stock between $1.98 and $2.25 per

share.    Joseph’s 1953 estate tax return, as adjusted by the IRS

estate tax examiner and accepted by the estate, assigned a value

of $2.25 per share to JM common stock and $1 per share to JM

preferred stock.   The 1953 estate tax return assigned values of

$1 per share for the JM stock subject to an option held by Cyril,

$150 per share for Specialty common stock, and $.90 per share for

     38
      Respondent based his valuation determination in part on a
market approach. The companies used by respondent were all
substantially larger in terms of total assets and revenues, sold
a wider variety of merchandise and services to a broader customer
base, and, other than a Macy’s located in San Francisco, none of
the companies had stores located in San Francisco or Reno.
                              - 56 -

Specialty preferred stock.   These values were accepted as filed

by respondent.   Additionally, Cyril valued JM common stock at

$2.25 per share and JM preferred stock at $.90 per share in his

1949 gift tax return.   Cyril’s 1949 gift tax return was not filed

until 1957, yet it acknowledged that the values it set forth were

in line with the stock values determined in connection with the

settlement of Joseph’s estate.   We find the estate and gift tax

returns of Joseph and Cyril and the document setting forth the

agreed upon adjustments relating to Joseph’s estate tax return to

be persuasive in reaching our valuation decision.   See, e.g.,

Estate of Hall v. Commissioner, 92 T.C. 312, 337-338 (1989);

Estate of Shafer v. Commissioner, supra at 1157.    The values used

for estate and gift tax purposes for years contemporaneous to the

October 31, 1951, agreement generally support the valuation

report of Mr. Stewart and contradict the valuation report of Mr.

Browning.39

     The valuation of the interests in issue is inherently more

difficult because they must be valued after nearly half a century

has passed and involve closely held companies devoid of stock

sales contemporaneous with the appropriate valuation date.

Valuation is necessarily an approximation, and a valuation

     39
      The application of Cyril’s share ownership in JM and
Specialty to the 1949 to 1953 estate and gift tax value ranges of
$1.98 to $2.25 per share for JM common stock and $.90 to $1 per
share for JM preferred stock, and values of $1 per share for the
JM option stock, $150 per share for Specialty common stock, and
$.90 per share for Specialty preferred stock, yields approximate
valuation ranges of $206,000 to $232,000 for Cyril’s entire stock
interest, and $104,000 to $117,000 for his remainder interest.
                              - 57 -

determination is appropriate if it is within a range of figures

that may properly be deduced from the evidence.   See Hamm v.

Commissioner, 325 F.2d at 939-940 (holding that this Court’s

valuation decision, phrased in “not less than” language,

possessed sufficient definiteness and constituted an acceptable

finding as to value).   Overall, we have found respondent’s

analysis to be more indicative of the values of the interests

transferred.   Factoring in the other considerations discussed

earlier, we hold that the value of the remainder interest

transferred by Cyril was between $90,000 and $110,000.

     C.   Conclusion

     The Court of Appeals for the Ninth Circuit emphasized that,

on remand, a determination of “adequate and full consideration”

requires a finding that the exchanged interests are of

“‘approximately equal value’”.   Estate of Magnin v. Commissioner,

184 F.3d at 1081 (quoting Estate of Davis v. Commissioner, 440

F.2d 896, 900 (3d Cir. 1968), revg. 51 T.C. 269 (1971)).     This

Court has not interpreted the “adequate and full consideration”

requirement as necessitating a dollar-for-dollar matching of

consideration paid with the value of the transferred property.

Estate of Carli v. Commissioner, 84 T.C. 649, 661 (1985); Estate

of O’Nan v. Commissioner, 47 T.C. 648, 663 (1967).   Cyril

transferred a remainder interest in exchange for a life estate.

The value of the remainder interest Cyril transferred was between

$90,000 and $110,000.   The value of the life estate Cyril

received was $43,878.   In the instant case, the approximately 2-
                              - 58 -

to-1 disparity between the remainder interest transferred by

Cyril and the consideration received by Cyril does not support a

finding that the two interests were of “approximately equal

value”.   Therefore, we hold that Cyril did not receive “adequate

and full consideration” for the remainder interest he transferred

to his children.   The estate is entitled to an offset of $43,878

under section 2043 for the partial consideration received by

Cyril.

     To reflect the foregoing,


                                         Decision will be entered

                                    under Rule 155.
