                 T.C. Memo. 1996-49




                UNITED STATES TAX COURT



   ESTATE OF JOSEPH R. CLOUTIER, JOSEPH A. CLOUTIER,
                FIDUCIARY, Petitioner v.
      COMMISSIONER OF INTERNAL REVENUE, Respondent



Docket No. 8905-94.              Filed February 13, 1996.



     C is a corporation whose stock is not listed on an
exchange. D owned 100 percent of the stock when he
died. D’s stock was valued at $12,582,000 on the
estate’s Federal estate tax return. After R determined
that the stock should have been valued at $15,440,000,
the parties stipulated that the stock was worth
$12,250,000, without regard to any marketability
discount or control premium that would otherwise apply.
The parties’ stipulation followed their receipt of
appraisals of the stock’s value. R’s sole appraisal
stated that the stock was worth $12,619,000. F’s three
appraisals stated that the stock was worth $11,625,000,
$11,652,555 and $11,850,000, respectively. In making
these appraisals, none of the appraisers determined the
stock’s value by reference to the price of comparable
listed stock. Held: Because the stipulated value has
not been shown to be representative of C’s “freely
traded value”, no discount for marketability is
allowable.
                                - 2 -

     Jon F. Spadorcia, S. Douglas Trolson, and Robert J. Milford,

 for petitioner.

     Russell D. Pinkerton, for respondent.



                        MEMORANDUM OPINION


     LARO, Judge:   The Estate of Joseph R. Cloutier, Joseph A.

Cloutier, Fiduciary, petitioned the Court to redetermine

respondent's determination of a $1,212,230 deficiency in the

Federal estate tax of the Estate.   Following concessions, we must

decide whether a discount for lack of marketability applies to

the stipulated value of stock owned by the Decedent at the time

of his death, and, if so, the amount of this discount.1    We hold

that no discount applies.   Unless otherwise indicated, section

references are to the Internal Revenue Code in effect as of the

date of the Decedent's death.   Rule references are to the Tax

Court Rules of Practice and Procedure.   We refer to Joseph R.

Cloutier as the Decedent.   We refer to the Decedent’s estate as


     1
       At trial, the Fiduciary made an oral motion that the Court
seal the record as to financial information concerning the
Estate. We did not rule on the Fidiciary’s motion at that time,
taking the matter under advisement pending release of our
Memorandum Opinion herein. The oral motion to seal the record
will be denied. Official records of this Court are open to the
public for inspection, Richmond Newspapers, Inc. v. Virginia, 448
U.S. 555, 567-568 (1980), unless a moving party shows that
sufficient countervailing interests outweigh the public interest
in access, Willie Nelson Music Co. v. Commissioner, 85 T.C. 914,
917-920 (1985). Petitioner has failed to make such a showing.
See Estate of Murphy v. Commissioner, T.C. Memo. 1990-346.
                                - 3 -

the Estate.    We refer to the Estate’s fiduciary (Joseph A.

Cloutier) as the Fiduciary.

                              Background

     The stipulations and attached exhibits are incorporated

herein by this reference.    The Decedent died on December 11,

1989, while a resident of Indiana.      The Fiduciary, a resident of

Indiana when he petitioned the Court, filed a Form 706, United

States Estate (and Generation-Skipping Transfer) Tax Return, on

behalf of the Decedent's estate.    Form 706 reflects the

Fiduciary’s election of an alternate valuation date under section

2032.    The alternate valuation date is June 11, 1990.

     Corporation for General Trade (CGT) is a corporation whose

stock is not listed on an exchange.      CGT’s stock was entirely

owned by the Decedent when he died.      CGT’s principal asset at the

time of the Decedent’s death was 100 percent of the stock of

Thirty-Three, Inc. (Thirty-Three).      Thirty-Three owned and

operated the NBC television affiliate in Fort Wayne, Indiana.2

Other assets of CGT at the time of the Decedent’s death included

rental real estate and a motor home.

     On the Form 706, the Decedent’s CGT stock was valued at

$13,969,000 on the date of his death, and $12,582,000 on the

alternate valuation date.    These values were based on two


     2
       After the Decedent died, but before the alternate
valuation date, Thirty-Three was merged into CGT, so that only
CGT existed on the alternate valuation date.
                                - 4 -

appraisals, neither of which is in the record and neither of

which included a marketability discount.    Respondent determined

that the Decedent’s CGT stock was worth $15,440,000 on the

alternate valuation date.    The parties have since stipulated that

the June 11, 1990, value of the Decedent’s CGT stock was

$12,250,000, without regard to any marketability discount or

control premium that may otherwise apply.    The parties’

stipulation followed their receipt of appraisals of the stock’s

value as of June 11, 1990.   Respondent’s sole appraisal stated

that the stock was worth $12,619,000.   Petitioner’s three

appraisals stated that the stock was worth $11,625,000,

$11,652,555 and $11,850,000, respectively.

     In making these appraisals, all of the appraisers relied

primarily upon transactional and financial data compiled by

Paul Kagan Associates, Inc. (Kagan), and none of the appraisers

determined CGT’s value by reference to the price of stock that

was listed on a public exchange.   The transactions reported by

Kagan included recent transactions in which stock of television

stations was transferred at arm's length.    All of the appraisers

also considered the nature of CGT, its history, its position in

the industry, its economic outlook, and other factors listed in

Rev. Rul. 59-60, 1959-1 C.B. 237 (regarding the valuation of

stock for Federal estate tax purposes).
                                 - 5 -

                             Discussion

     We must determine whether a marketability discount applies

to the stipulated value of the Decedent’s CGT shares, and, if so,

the amount of this discount.   Respondent determined no

marketability discount for the shares and adheres to that

position.   The Fidiciary included no marketability discount in

the value of the CGT shares reported on the Form 706, but he now

argues for a 25-percent discount.    The Fidiciary must prove the

applicability and amount of a marketability discount.      Rule

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

Gilford v. Commissioner, 88 T.C. 38, 50-51 (1987); see also

Mandelbaum v. Commissioner, T.C. Memo. 1995-255.

     Property includable in a decedent's gross estate is included

at its fair market value on either:      (1) The date of the

decedent's death or (2) the alternate valuation date as provided

under section 2032.   Secs. 2031(a) and 2032(a); sec.

20.2031-1(b), Estate Tax Regs.    Fair market value is a question

of fact.    Commissioner v. Scottish Am. Inv. Co., 323 U.S. 119,

123-125 (1944); Helvering v. National Grocery Co., 304 U.S. 282,

294 (1938).   Fair market value represents the price that a

willing buyer would pay a willing seller, both persons having

reasonable knowledge of all relevant facts and neither person

under a compulsion to buy or to sell.      Sec. 20.2031-1(b),
                               - 6 -

Estate Tax Regs.; see also United States v. Cartwright, 411 U.S.

546, 551 (1973); Estate of Hall v. Commissioner, 92 T.C. 312,

335 (1989).   The willing buyer and the willing seller are

hypothetical persons, instead of specific individuals or

entities, and the characteristics of these hypothetical persons

are not necessarily the same as the personal characteristics of

the actual seller or a particular buyer.   Estate of Bright v.

United States, 658 F.2d 999, 1005-1006 (5th Cir. 1981);

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

     Special rules govern the valuation of corporate stock,

depending on whether the stock is listed on an established

securities market.   When stock is so listed, its value usually

equals its listed market price.   When stock is not listed on an

established market, its value is usually based on the

arm's-length sales (if any) of the unlisted stock that have

occurred within a reasonable time of the valuation date.

Estate of Andrews v. Commissioner, 79 T.C. 938, 940 (1982);

Duncan Indus., Inc. v. Commissioner, 73 T.C. 266, 276 (1979).

In the absence of recent arm's-length sales, the value of

unlisted stock should be determined by taking into account the

value of listed stock of corporations engaged in the same or a

similar line of business.   Sec. 2031(b); Estate of Hall v.

Commissioner, supra at 336.   Unlisted stock must also be valued
                                - 7 -

indirectly by reference to the subject corporation's net worth,

its prospective earning power, its dividend-earning capacity, its

goodwill, its management, its position in the industry, the

economic outlook for its industry, and the degree of control

represented by the block of its stock to be valued.   See

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

v. Commissioner, supra at 940; sec. 20.2031-2(f), Estate Tax

Regs.; see also Estate of Lauder v. Commissioner, T.C. Memo.

1994-527.

     When determining the value of unlisted stock by reference to

the value of listed stock, a discount from the listed value is

typically warranted in order to reflect the lack of marketability

of the unlisted stock.    Mandelbaum v. Commissioner, supra.   Such

a discount, namely, a "lack of marketability discount" (or, more

succinctly, a "marketability discount"), generally reflects the

absence of a recognized market for closely held stock and

accounts for the fact that closely held stock is generally not

readily transferable.    See Estate of Hall v. Commissioner, supra;

Estate of Gilford v. Commissioner, supra.    A marketability

discount also reflects the fact that a buyer may have to incur a

subsequent expense to register the unlisted stock for public
                               - 8 -

sale.3   See Estate of Hall v. Commissioner, supra; Estate of

Gilford v. Commissioner, supra.

     Petitioner relies primarily on the testimony and report of

its expert witness, R. James Alerding, to support its claim that

it is entitled to discount the parties’ stipulated value for the

subject shares’ lack of marketability.   Mr. Alerding concluded

that petitioner may discount his appraised values by 25 percent

for the shares’ lack of marketability.   Mr. Alerding reached his

conclusion, in the main, by attempting to apply the factors

recently set forth in Mandelbaum v. Commissioner, supra.

     While expert testimony can sometimes aid the Court in

evaluating a claim, we need not follow an expert's opinion when

it is contrary to our judgment.   We may reject an expert’s

opinion in its entirety whenever we believe it is appropriate to

do so.   Helvering v. National Grocery Co., supra at 294-295;

Estate of Kreis v. Commissioner, 227 F.2d 753, 755 (6th Cir.

1955), affg. T.C. Memo. 1954-139.   With respect to the opinion of

Mr. Alerding, we believe that it is appropriate to do so.     His

report and testimony are unhelpful to the Court, and we find both

to be unpersuasive.   In contrast to the detailed reports that we


     3
       In certain cases, a buyer's registration costs may be
minimal. For example, registration costs may be minimal to the
buyer if he or she has the right to compel the corporation to
register (or otherwise "piggyback") the unlisted shares at its
expense.
                                 - 9 -

typically see with respect to an expert’s opinion of valuation,

Mr. Alerding’s report is three pages long and consists mainly of

bald assertions that a 25-percent marketability discount is

warranted.   His report contains no meaningful discussion of any

of the factors of valuation; it does not reflect a review of

basic information necessary to render an opinion on valuation;

and it shows undue reliance on appraisals performed by third

parties.   As a point of fact, one of the appraisals on which

Mr. Alerding purported to rely was merely a draft of an

appraisal, and Mr. Alerding never spoke to the author concerning

the author’s completion of that draft or about any of the

information contained therein.

     Mr. Alerding also relied on studies of property that was not

comparable to the subject property in order to form a “benchmark”

on which to base his conclusion concerning the amount of a

marketability discount.   He failed to evaluate properly whether

the Decedent's 100-percent interest in CGT merited a premium for

control, or whether such a premium (if one existed) would

neutralize his proffered marketability discount.4   He focused


     4
       The Court has often determined a control premium in the
case of a majority interest. See, e.g., Estate of Trenchard v.
Commissioner, T.C. Memo. 1995-121, and the cases cited therein.
A control premium reflects a shareholder's ability to control a
corporation through his or her dictation of its policies,
procedures, or operations. Estate of Chenoweth v. Commissioner,
                                                   (continued...)
                              - 10 -

exclusively on the hypothetical buyer, to the exclusion of the

hypothetical seller.   In this latter regard, we find unpersuasive

Mr. Alerding’s conclusion that a willing seller of a 100-percent

interest in CGT would have to discount the value of that interest

by 25 percent for lack of marketability.   See Mandelbaum v.

Commissioner, T.C. Memo. 1995-255; Moore v. Commissioner,

T.C. Memo. 1991-546.

     We also note that Mr. Alerding has limited experience with

respect to the valuation at hand.   In response to questions from

the Court, Mr. Alerding acknowledged that he had no experience in

valuing television station property, and that he had reached his

conclusion without direct reference to similar publicly traded

property or stock.   Although a marketability discount may apply

in some cases where 100 percent of the stock of an unlisted

corporation is held by one shareholder, a discount for lack of

marketability is inapplicable when the value of the unlisted

stock is not determined by reference to the price of listed

stock.5   This is a key point that Mr. Alerding missed when he

     4
       (...continued)
88 T.C. 1577, 1589 (1987); Estate of Trenchard v. Commissioner,
supra; accord Rev. Rul. 59-60, 1959-1 C.B. 237, 242 (controlling
interest in closely held company may command a higher price than
a minority interest).
     5
       As we understand the thrust of Mr. Alerding’s thinking
with respect to marketability discounts, the value of a single
asset is significantly reduced by a lack of marketability
                                                   (continued...)
                              - 11 -

attempted to apply our Mandelbaum analysis to the facts herein.

In Mandelbaum v. Commissioner, supra, the parties stipulated the

freely traded value of the corporation’s shares, and we were

asked to determine the marketability discount that applied to

that value.   In the instant case, by contrast, the parties have

given us a stipulated value that neither party claims is the

subject stock’s freely traded value.6   Thus, we find that a

strict application of the Mandelbaum analysis is out of place in

the instant case.

     The bottom line to this case is that petitioner asks us to

determine a marketability discount with respect to a value that

does not represent the stock’s freely traded value.   This we will

not do.   It is inappropriate to discount the value of the stock

for a lack of marketability in these circumstances.   The discount

is confined to property that is being valued by reference to

prices paid for assertedly comparable property.


     5
       (...continued)
whenever the asset is transferred to a corporation that is wholly
owned by a single shareholder. To such a broad proposition, we
do not agree. Suffice it to say that a marketability discount
may be appropriate in such a case, but only to account for the
difference between the value of the shareholder’s stock and the
freely traded value of otherwise comparable stock that is listed
on an exchange.
     6
       Indeed, in response to a question from the Court at trial,
petitioner’s counsel acknowledged that the stipulated value was
merely a conciliatory amount that the parties reached following
their review of the appraisals.
                             - 12 -

     Because the record does not show that a marketability

discount applies to the stipulated value of the Decedent’s CGT

shares, we hold that no discount for marketability is allowable.7

In so holding, we have considered all arguments made by

petitioner, and, to the extent not discussed above, have found

them to be without merit.

     To reflect the foregoing,

                                     Decision will be entered

                                 under Rule 155.




     7
       Respondent argues that the fact that the Decedent
controlled CGT means that a control premium exists to the extent
of any marketability discount. Based on our holding, we need
not, and do not, address this argument.
