                        T.C. Memo. 1996-149



                      UNITED STATES TAX COURT



       ESTATE OF JOSEPH CIDULKA, DECEASED, JAMES S. BOZIK,
                   ADMINISTRATOR, Petitioner v.
           COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket Nos. 22456-91, 564-93.            Filed March 25, 1996.



     Joel Yonover, Brantley H. Wright, and Richard O. Kissel II,
for petitioner.


     Stewart T. Hittinger and Russell Pinkerton, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION

     SCOTT, Judge:   Respondent in docket No. 22456-91 determined

a deficiency in the estate tax of the Estate of Joseph Cidulka,

deceased (decedent), in the amount of $1,223,726, and in docket

No. 564-93 determined a deficiency in gift taxes of decedent and

additions to tax for the calendar year 1982 as follows:
                                                 Additions to tax             Tax
year ended   Deficiency      Sec. 6653(a)(1) Sec.6653(a)(2) Sec.6651(a)(1)

Dec. 31, 1982     $845,678          $42,283.90   50% of the     $211,419.50
                                                 interest due
                                                 on $845,678


      All section references are to the Internal Revenue Code as

in effect at the time of decedent's death, and all Rule

references are to the Tax Court Rules of Practice and Procedure,

unless otherwise indicated.

      A number of adjustments were made by respondent in the

estate tax notice of deficiency, all of which have been disposed

of by agreement of the parties, except those involving the proper

valuation of gifts made by decedent in the years 1980, 1981, and

1982 of stock in State Outdoor Advertising, Inc. (SOAI), which

respondent determined to be included in the taxable estate on

which the tentative estate tax is computed.

      Decedent filed no gift tax return for any of the years 1980,

1981, or 1982.      The notice of deficiency for gift taxes is with

respect to the year 1982 only but incorporates the amount of

gifts for prior periods.          It shows the amount of 1982 taxable

gifts as $2,162,620, less a $10,000 annual exclusion, or a net of

$2,152,620.

      The notice of deficiency for gift tax for 1982 shows "Total

Amount of Taxable Gifts for Prior Periods" as $95,789, whereas

the notice of deficiency for estate tax shows adjusted taxable
                                 - 3 -

gifts for the calendar year 1980 of $64,789, for 1981 of $66,524,

and for 1982 of $2,223,958.

     Neither party has explained to the Court the reason for the

differences.

     The major issue remaining for decision in both the estate

tax case and the gift tax case is the value of the stock of SOAI

transferred on January 25, 1982.    The parties have stipulated

that this value will also be the value in 1980 and 1981, except

for petitioner's contention that market and minority discounts

are applicable to these years.    The following issues remain for

decision in the gift tax case:    (1) Whether petitioner is liable

for gift taxes with respect to transfers of stock made by

decedent, or his revocable trust, to his son and grandchildren in

December 1980, December 1981, and January 1982; (2) whether the

purported redemption on January 25, 1982, of stock of SOAI held

by decedent's revocable trust was, in part, a gift to decedent's

son; (3) the value of stock in SOAI on January 25, 1982; (4)

whether annual gift tax exclusions are available with respect to

decedent's transfers of stock in SOAI in 1980, 1981, and 1982 to

his daughter-in-law and grandchildren; (5) whether petitioner is

liable for an addition to tax under section 6651(a)(1) for

decedent's failure to file a gift tax return for 1982; and (6)

whether petitioner is liable for an addition to tax under section

6653(a)(1) and (2) for 1982 for negligence or intentional

disregard of rules and regulations.
                                 - 4 -

     The only remaining issue in the estate tax case is the

amount of prior years' gifts to be included in the amount of the

taxable estate.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are found

accordingly.

     The petitioner in these consolidated cases, docket Nos.

22456-91 and 564-93, is the Estate of Joseph Cidulka, deceased,

James S. Bozik, administrator.    Mr. Bozik, whose office was

located in Valparaiso, Indiana, was appointed administrator after

the time of the filing of the petitions in these cases.    Decedent

was domiciled in Portage, Indiana, at the time of his death.      A

U.S. Estate Tax Return, Form 706, was timely filed on behalf of

decedent's estate.    A U.S. Quarterly Gift Tax Return, Form 709,

for the calendar quarter ended December 31, 1976, was filed by

decedent and was the only gift tax return ever filed by decedent.

     Decedent was predeceased by his wife, Helen Cidulka.

Decedent's son, Mr. John C. Cidulka (John Cidulka or John), was

predeceased by his wife, Charlesa Cidulka.    John and Charlesa

Cidulka had two children, John Joseph Cidulka (John Joseph), born

on January 16, 1968, and Lauren Jean Cidulka (Lauren), born on

June 28, 1965.    John Cidulka married Marilyn Cidulka following

the death of Charlesa Cidulka.

     Decedent was born on February 24, 1904, and died on October

20, 1987.   John Cidulka died on November 14, 1993.
                                 - 5 -

     From April 1950 until January 25, 1982, decedent owned the

majority of common stock in SOAI, a closely held corporation.

SOAI was taxed as a regular or C corporation during the period

1980 to 1982.   In 1960, after a 5-for-1 stock split, decedent

owned 850 of the 990 outstanding shares of SOAI.    The other two

shareholders were decedent's wife with 5 shares, and Mr. James C.

Hull, an unrelated party, with 135 shares.    From 1960 to December

1977, decedent transferred by gift 366 shares of stock in SOAI to

John Cidulka.   Decedent retained 448 shares.   Prior to 1977, 176

shares were acquired by SOAI and held by SOAI as treasury stock.

During the period 1960 to December 1977, decedent made annual

gifts of common stock varying from 3 to 10 shares to both John

Cidulka and Charlesa Cidulka.    On the same days that Charlesa

Cidulka received stock as a gift from decedent, these same shares

were reissued to John Cidulka.    Charlesa Cidulka never retained

the ownership of the shares of stock she received from decedent.

The stock transfer record indicates that on 14 different

occasions during the period 1963 through 1982 Charlesa Cidulka

received shares from decedent and transferred them to John

Cidulka on the same day.

     On October 14, 1979, decedent transferred his 448 shares in

SOAI to the Bank of Indiana, trustee of the Joseph Cidulka

Revocable Trust (the revocable trust).    The Joseph Cidulka

revocable trust agreement (the revocable trust agreement) was

dated September 28, 1979.   In article 8 of the revocable trust
                                - 6 -

agreement, decedent reserved the right to revoke, modify, or

otherwise alter the terms of the trust, in whole or in part.    On

December 17, 1980, and again on December 28, 1981, 3 shares of

stock in SOAI were transferred from the revocable trust to each

of four members of decedent's family:   His son John Cidulka, his

daughter-in-law Charlesa Cidulka, his grandson John Joseph, and

his granddaughter Lauren.   Lauren and John Joseph signed the

stock transfer records with respect to the shares transferred to

them in each of the years 1980 and 1981.    Despite these purported

transfers, SOAI's 1980 and 1981 U.S. Corporation Income Tax

Returns, Forms 1120, listed only two stockholders, decedent with

a 51-percent interest, and John Cidulka with a 49-percent

interest in the outstanding corporate stock.

     On the morning of January 25, 1982, decedent owned, in

trust, 424 shares, representing 52 percent of the outstanding 814

shares of SOAI.   On that day, decedent resigned as chairman of

the board and retired from SOAI.   Also on that day, decedent and

SOAI rescinded a stock redemption agreement applicable to the

stock of SOAI.    Also on that day, decedent transferred by gift 40

shares of SOAI to family members and sold his remaining shares of

stock to SOAI in exchange for a promissory note in the face

amount of $370,000 (the promissory note).   Decedent's attorneys,

Mr. Clyde Compton and Mr. Ed Hussey, planned the stock transfers.

Decedent did not obtain an appraisal of SOAI to determine the

fair market value of the stock as of the date of the sale of his
                                - 7 -

stock to SOAI.    Decedent filed no gift tax return for 1980, 1981,

or 1982 reporting a taxable gift either of the 40 shares he

transferred by gift, or any gift resulting from the sale of his

SOAI stock for less than adequate and full consideration in 1982,

if in fact it was sold for less than its full value.

     The determined value for which decedent sold his stock to

SOAI was based upon the book value of SOAI as of December 31,

1981.    The book value of the corporation at the date of this

exchange approximated $784,323, or $963.54 per share for each of

the 814 shares outstanding.

     After the redemption of decedent's stock, the stock transfer

record indicates that there were three shareholders:    John

Cidulka with 398 shares; John Joseph with 16 shares; and Lauren

with 16 shares.    The remaining 560 shares were held as treasury

stock.    Neither John Joseph nor Lauren signed the SOAI stock

transfer records acknowledging receipt of the 10 shares each of

SOAI stock given to them on January 25, 1982.

     On December 31, 1985, SOAI entered into an asset purchase

agreement with Whiteco Metrocom (Whiteco), selling all of its

assets to Whiteco for a purchase price of $7 million.    Whiteco

did not have a monopoly of the outdoor advertising business in

the area where it operated after the asset sale.    The assets sold

to Whiteco included the outdoor signs, ground leases, advertising

contracts, permits, parcels of real estate, vehicles, equipment,

inventory, furnishings, parts, materials, and other contracts.
                                  - 8 -

        On December 31, 1985, Whiteco also purchased the real

property where the business office of SOAI was located, in Gary,

Indiana, for $300,000, in a separate agreement with the Cidulka

family partnership which owned the building.      The gross rent

multiplier for this sale based on the gross rentals for the

calendar year 1985 is 3.11.1     If gross rentals are reduced by

estimated accounts receivables of $500,000 the multiplier is

2.89.

     Whiteco converted many of the SOAI poster billboards to

permanent paint billboards.      Whiteco replaced many of the

billboards at these locations from 4 to 12 years after January

25, 1982.

     The replacement cost of all 578 billboards of SOAI involved

in the sale by SOAI to Whiteco would have been approximately $6

to $6 1/2 million, without including lease-up costs.

     The book value of the assets sold in January 1985, as

reflected on the Schedule M of the SOAI Form 1120 for the year

ended December 31, 1985, totaled $851,176, summarized as follows:

                  Inventories      $89,440
                  Fixed assets     673,119
                  Land              88,617
                    Total          851,176




        1
        The gross rent multiplier or gross income multiplier is
the amount by which gross rentals from the immediately preceding
year must be multiplied to arrive at the sale price for the
business assets purchased.
                               - 9 -

     The final liquidating distribution of SOAI was made on

August 18, 1986, solely to John Cidulka in the amount of

$6,038,820.   SOAI retained cash in the amount of $831,394 to pay

income taxes for the taxable year ended October 31, 1986, and any

other remaining liabilities.   No distributions were ever made to

John Joseph or Lauren.   Neither John Joseph nor Lauren ever

received any benefits or distributions from his or her purported

stock interests in SOAI.

     On December 23, 1986, John Cidulka entered into an

assignment agreement with SOAI to assume the entire obligation on

the promissory note given to decedent for his stock.   Immediately

after John Cidulka assumed the obligation on the promissory note,

decedent forgave $20,000 on the principal of the promissory note.

     Although each grandchild of decedent, John Joseph and

Lauren, owned 16 of the 430 shares outstanding when SOAI was

dissolved, they assumed no portion of the promissory note.

     The fair market value of the promissory note, based on the

self-canceling clause in the note, was $307,381.09 on January 25,

1982.

     SOAI was incorporated in the State of Indiana, which was the

major area in which it operated its outdoor advertising business.

SOAI had signs located in northwest Indiana in Lake, Porter, and

LaPorte Counties, and in a few locations in Cook County,

Illinois.   The principal cities in Lake County are Gary, Hammond,
                               - 10 -

East Chicago, and Whiting.    SOAI's business office was located in

Gary, Indiana.

     Mr. Kenneth Krupinski of Swartz, Retson, Kettas & Franko was

SOAI's primary certified public accountant during the years 1979

until the sale of the assets on December 31, 1985.     The financial

statements of SOAI were unaudited.      SOAI's accountants prepared

annual compilations based on the information presented to them by

officers and employees of SOAI.

     In the years 1977 through 1981, SOAI's compound annual

growth in sales volume was 4.75 percent per year, which is

considered average to above average in the outdoor advertising

industry.

     The assets of SOAI primarily consisted of outdoor

advertising structures, more commonly known as billboards,

located on leased sites along highways.     The SOAI assets other

than billboards were recorded at cost and were generally

depreciated on a straight-line basis over their estimated useful

lives.

     SOAI had no long-term debt on December 31, 1981, other than

a life insurance policy loan, and was in stable financial

condition.

     SOAI's gross income consisting of its gross rental revenues

totaled $1,578,555 in 1981.   This income increased to $1,623,800

in 1982 and to $2,249,486 in 1985.
                              - 11 -

     SOAI had more billboards than any other company in its

market area of northwest Indiana, despite the fact that it faced

substantial outdoor advertising competition from Whiteco, 3M

National, Bik/Odeguard, and various individuals in 1981 and 1982.

Neither SOAI nor Whiteco had a monopoly in the local market area.

     SOAI had a diversified customer base and was not dependent

on any one lease for more than a small portion of its business.

Petitioner did not identify any specific sign location that SOAI

lost during the years at issue, although an attrition rate of 0.5

to 1 percent per year was standard in the outdoor advertising

industry.   SOAI's value is attributable to its lease contracts

associated with its outdoor advertising structures, and its

income was derived primarily from advertising contracts for the

use of outdoor signs.

     The billboards on which the outdoor advertising industry

sells advertising space are typically constructed from wood or

steel and are generally located on leased property.   The

billboard space is rented to the advertiser for a specific time

period.   Each billboard is covered either with a "posted" paper

or hand-painted advertising messages supplied by the advertiser

or an advertising agency.

     The Outdoor Advertising Association of America, which is a

national trade association representing the outdoor advertising

industry, suggests standards for billboards.   Types of billboards

include permanent paints (paints), rotary bulletins, posters, and
                                - 12 -

deluxe posters.   Paint structures vary in size and shape, and

generally have a fixed-term contract for the advertising space.

The advertisement is permanently painted on the sign face.      Paint

structures may be standard or nonstandard in size.    National

advertisers typically avoid nonstandard signs.    Paint structures

have less turnover than other structures since their message

generally involves advertising of a certain location.    This

results in less vacancy and higher gross sales volumes.    Paint

structures require less maintenance because of the lower turnover

rate.   Poster and rotary bulletin units are utilized by

advertisers for shorter periods of time and have higher

maintenance cost than paints.    SOAI was primarily a paint

operation on the valuation date, January 25, 1982.

     Posters are standardized advertising copy printed on posting

paper and pasted on the face of the sign structure.    A poster

copy size is standard throughout the industry at 12 feet 3 inches

high by 24 feet 6 inches long.    Industry-wide posters have the

highest vacancy of any billboards throughout the United States.

     Deluxe posters, also known as junior posters or 8-sheet

poster panels, are small standardized advertising copy printed on

posting paper and pasted on the face of the sign structure.      A

deluxe poster measures approximately 6 feet in height by 12 feet

in length.

     Rotary bulletins have consistent face sizes on varying types

of structures.    The advertising copy is rotated between various
                              - 13 -

locations during the course of the total contract.    Rotary

bulletins are generally 14 feet high by 48 feet wide, which is

the same size as standard paint signs.

     Directional billboards are very specific in nature,

providing specific information content to a motorist as to how to

get to a particular location or advertiser, and are prominently

placed or displayed on nonstandard signs.    All directional

advertising is local advertising for an establishment at a

particular location.   Directional outdoor advertising differs

from traditional or standard outdoor advertising due to the

nature of the advertisements, and often the actual size of the

signs.   Directional advertising contracts are typically 2 to 3

years in length with no price increase built into the contracts.

     Any outdoor advertising structure, including permanent

paint, rotary bulletins, posters, or deluxe posters, can be used

for national, regional, directional, or local advertising.      The

structure of the billboard is the same whether the message refers

to national advertising or directional advertising.

     Local businesses represent 70 percent of the annual revenues

of the billboard industry nationwide.    Typically, national

advertisers spend the greatest amounts of revenue on the east and

west coasts, principally in the larger cities.    The central

United States has the lowest percentage of national advertisers

as compared to advertising by local businesses.    In the SOAI

market area, 80 to 90 percent of the advertising is local.      Local
                                - 14 -

directional advertisers are generally the most durable

advertisers because the signs they use have to be in a certain

location directing customers to a specific place of business.

The rate charged for the face of a specific sign is the same

whether a national advertiser or local advertiser is the client.

     The most important factor in outdoor advertising is

location.   Interstate highways and freeways are the most prized

locations in outdoor advertising.    Locations have value, even if

the structures are old and decrepit.     In some instances it may

not be possible to replace old, decrepit structures because of

local government regulations.    However, such regulations may be

beneficial to advertisers already established in the market.

     Traffic patterns are very important in the outdoor

advertising industry.    The major roadway systems through the SOAI

market area include:    Interstate 65, a north/south interstate

highway through Lake County, Indiana; Interstates 80, 90, and 94,

east/west interstate highways through Cook County, Illinois, and

Lake, Porter, and LaPorte Counties, Indiana; U.S. Highway 30, an

east/west U.S. highway through Lake, Porter, and LaPorte

Counties, Indiana; U.S. Highway 41, a north/south U.S. highway

through Lake County, Indiana; and U.S. Highway 6, an east/west

U.S. highway through northern Indiana.     The interstate systems

and many of the highways in the SOAI market area lead directly

into the Chicago area.
                               - 15 -

     Sales of outdoor advertising companies are generally sales

of the assets of the business rather than sales of the stock.

Persons in the industry believe that the small number of stock

sales of outdoor advertising companies is due to the reluctance

of buyers to take the risk of unknown liabilities from past

operations of a corporation, and to deal with the tax issues

raised by buying the stock of a corporation and liquidating the

corporation.   Existing outdoor advertising plants are attractive

acquisition candidates because of the small number of locations

available for new construction.   Not all buyers of outdoor

advertising companies in the last 10 years, however, have

previously been in the outdoor advertising industry.

     Approximately 62 percent of SOAI's paints in 1981 were

illuminated, utilizing older gooseneck-style lighting.   SOAI's

nonstandard inventory consisted predominantly of multipost

structures made from creosote wood poles, which were less

desirable to national advertising than the more modern

standardized uni-pole paint.   SOAI's paints were generally

smaller in size than standard paints and offered an economical

alternative to local advertisers.   SOAI's inventory of sign faces

as of December 31, 1981, was as follows:
                                  - 16 -

                    State Outdoor Advertising, Inc.
                        Inventory of Sign Faces
                           December 31, 1981

     Size of face                      Number         Percent of total

Nonstandard size paints
 6' x 16' Panels                           151              26%
 12' x 44' Paints                           85              15
 10' x 43' Paints                           36               6
Miscellaneous size paints1                  53               9

Total nonstandard size paints              325              56

Standard size signs
 14' x 48' Paints                           70              12
 12' x 25' Posters                         183              32

Total standard sign faces                  253              44


Total sign faces                           578             100
     1
       Includes 8' x 18', 8' x 20', 8' x 24', 10' x 24', 10' x
25', 10' x 30', 10' x 40', 10' x 44', 10' x 50', 12' x 42', 12' x
50', 15' x 50', and 15' x 75' sized signs.

     SOAI paid its officers the amounts indicated below for the

years indicated:

     Year              Decedent            John   Patrick Green

     1979              $75,262         $120,190       $37,174
     1980               86,892          137,150        44,292
     1981               89,510          147,946        46,200
     1982                3,900          162,033        48,554



Patrick Green was not a member of the Cidulka family.

     After the date of his resignation, decedent received no

further benefits as an employee or shareholder of SOAI other than

his pension benefits, which had already accrued.
                             - 17 -

     During the years 1981 and 1982, John Cidulka was involved in

nearly every aspect of SOAI, including accounting, sales,

construction, collection of accounts, leases, site selection,

construction of signs, and supervision of employees.    In 1981,

the total number of employees of SOAI was 25.    After January 25,

1982, no member of the Cidulka family, other than John Cidulka,

was employed by SOAI, except for Lauren, who was employed on a

part-time basis in 1982 and 1983, for which she received $1,200

and $2,300, respectively.

     In 1981, SOAI had a profit-sharing plan.    The formula for

contributions was 5 percent of earned payroll.    John Cidulka

received only the pension benefits received by other employees,

but he did receive a company car and other related benefits.

     The unaudited balance sheets of SOAI for its fiscal years

1977 through 1981 in summary show the following:
                                       - 18 -
                           STATE OUTDOOR ADVERTISING, INC.
                                 Balance Sheet Summary
                            December 31, 1977 through 1981
                                  Unaudited--Compiled


Assets                      1977        1978         1979        1980        1981


Cash                     $43,249      $13,913      ($1,870)    ($20,209)    $-0-
Accounts receivable       80,073       73,390       69,820       79,393     100,457
Other                      -0-           -0-        20,284       12,894      15,053
Total current
  assets                 123,322       87,303       88,234       72,078     115,510

Fixed assets
  at cost                868,285      899,498    1,075,979    1,154,330    1,195,232
Less: accum.
  depreciation           (458,552)   (470,956)    (485,735)    (502,526)   (529,414)

Net fixed assets         409,733     428,542      590,244      651,804      665,818
Land                     172,911     175,638      175,638      175,638       64,060
Other assets              10,917      16,954       18,617       24,359       24,335
TOTAL ASSETS             716,883     708,437      872,733      923,879      869,723

Liabilities and equity

Bank overdraft               -0-         -0-         -0-          -0-        48,049
Accounts payable            3,897      13,488        -0-          -0-          -0-
Notes payable                -0-         -0-        20,000       15,000      15,000
Accruals: other            22,120     (19,640)      45,289       20,221       6,666
Total current
  liabilities             26,017       (6,152)      65,289       35,221      69,715
Note payable: bank          -0-           -0-       78,333       99,877        -0-
Note payable:
Manhattan Life               -0-          -0-         -0-        21,042       21,042
Total long-term
  liabilities               -0-           -0-       78,333      120,919      21,042
Common stock              19,800       19,800       19,800       19,800      19,800
Retained earnings        709,541      733,265      747,787      786,415     797,642

Less: Treasury stock     (38,476)     (38,476)     (38,476)     (38,476)    (38,476)
Total equity             690,865      714,589      729,111      767,739     778,966

TOTAL LIABILITIES AND
  STOCKHOLDERS' EQUITY   716,882      708,437      872,733      923,879     869,723




         Set forth below is a comparative statement of income of SOAI

for the years ending 1981 and 1982 as shown by its unaudited

records:
                                - 19 -

                                    1981             1982
                                   Amount           Amount
Sales
Net sales                       $1,578,555       $1,623,800
Total direct costs                 825,998          881,515

Gross margin                       752,557          742,285

Total operating expenses           806,927          773,758

Operating income (loss)            (54,370)         (31,473)

Other income                        59,310           27,678

Net income (loss)                    4,940           (3,795)



     The 1979-82 recession resulted in the loss of population and

jobs in the Lake County area.    For the years 1980, 1981, and

1982, the unemployment rates were 14.3 percent, 11.8 percent, and

16.09 percent, respectively.    The Lake County unemployment rate

remained above 10 percent until 1987.    In 1982, the Lake County

unemployment rate was more than 40 percent above the unemployment

rate for the State of Indiana.    Per capita personal income

increased in the Lake County area every year except 1982, though

it declined relative to the rest of the State.

     Lake County's population peaked at 551,100 in 1971.      By

1982, the county had lost 36,800 persons or 6.7 percent of its

population.    By 1987, there was an additional shrinkage of

27,700.   The population of Lake County has represented a smaller

percentage of the State's population every year since 1965.
                                  - 20 -

     Examples of the gross income multipliers of asset purchases

of companies engaged in the outdoor advertising business made on

the dates indicated were as follows:

                                                   Gross rental   Gross rent
   Date             Seller            Sale price      income      multiplier1
                                           2
Dec. 1980        Piedmont                             Unknown        3.00

July 1981        Atlanta Outdoor     $5,100,000     $1,730,000       2.95

Jan. 22, 1982    Naegele Outdoor     31,972,544     10,174,393       3.14

Mar. 1, 1982     Creative Displays    3,614,673      1,204,891       3.00

Apr. 1982        Peck Sign            3,485,000      1,013,080       3.44

Apr. 15, 1983    Austin Displays      5,500,000      1,504,000       3.70

Aug. 19, 1983    Creative Displays 27,000,000        8,700,000       3.10

Jan. 1, 1984     Roberts Outdoor      4,000,000        984,000       4.10

May 24, 1985,    Major Media        400,000,000     89,764,000       3.90

Jan. 1, 1987     Palmer Outdoor       3,050,000        902,776       3.38

     1
         Includes sign (plant) structures only.
     2
       Negotiated on the basis of "Three (3) times the aggregate
billings for outdoor advertising space for the twelve (12) months
ending November 30, 1980, plus one-half (1/2) of the book value as
of November 30, 1980, of Piedmonts Inventories--including autos,
trucks, personal property, etc."




     During the 20-year period from 1974 to 1993, there were at

least 140 sales of assets of outdoor advertising companies.

During the 4 years 1980 through 1983, there were at least 43 such

sales:    6 in 1980, 8 in 1981, 10 in 1982, and 19 in 1983.       One of
                               - 21 -

the sales was of a 49-percent interest.   Of the 42 remaining

sales, 4 were for a gross income multiplier (multiplier) of less

than 2.5, 18 were at a multiplier of above 3, and 19 were in the

range of 2.5 to 3.   Of the 4 sales that were at a multiplier of

less than 2.5, one was at 2.2, one at 2.36, and two at 2.41.     The

sale at a multiplier of 2.2 involved only 2 billboard faces.     The

sale at a multiplier of 2.36 was primarily of poster billboards.

The highest of the 42 sales was at a multiplier of 4.1.

     The prime interest rate, the rate a bank charges to its best

customers, was between 15.75 and 16.5 percent from prior to

December 1981 to February 1982.

     Listed below are the yields as of January 1982 on the

following types of securities:

          Type of security                    Rate of return

          Corporate bonds (Aaa)                    15.8%
          Corporate bonds (A)                      16.19
          U.S. bonds--5 years                      15.5
          U.S. bonds--10 years                     14.57


     A notice of deficiency was timely mailed to petitioner in

docket No. 22456-91 on July 17, 1991, with respect to the estate

tax liability.   A notice of deficiency was timely mailed to

petitioner in docket No. 564-93 on October 27, 1992, with respect

to the gift tax liability of decedent for the year ended

December 31, 1982.   Respondent in her notice of deficiency in

gift tax stated with respect to the value of gifts made by

decedent in 1982 as follows:
                              - 22 -


     It is determined that on January 25, 1982, the donor as
     co-trustee of the Joseph Cidulka Revocable Trust,
     transferred 424 shares of State Outdoor Advertising,
     Inc. with a fair market value of $2,470,000.00 from a
     grantor trust. As consideration for this transfer, the
     donor received a promissory note with a fair market
     value of $307,380.00. Therefore, the total gifts of
     the donor are increased $2,162,620.00 for the gift tax
     year ended December 31, 1982.
                             OPINION

     The major issue in this case is the value of the stock of

SOAI on January 25, 1982.   For some years prior to 1982 decedent

had from time to time given stock in SOAI to his son John Cidulka

and to John's then wife Charlesa Cidulka, who had immediately

transferred the shares to John, so that as of the end of 1981,

John Cidulka held 378 shares of stock of SOAI including shares

given to him and Charlesa Cidulka in 1981.   A revocable trust set

up by decedent to hold certain assets of his, including stock in

SOAI, held 424 shares at the end of 1981 and 6 shares were listed

in the names of each of John Cidulka's children, John Joseph and

Lauren, who were in their teens.   Of the 6 shares held by each

child, 3 shares had been transferred by decedent in 1980 and 3

shares in 1981.   As of the beginning of January 25, 1982,

decedent owned through his trust approximately 52 percent of the

outstanding shares of SOAI consisting of 424 shares, and the

remaining shares totaling 390 were held by John Cidulka and in

the names of his two children.

     The parties disagree as to whether the gifts made on January

25, 1982, whereby the trust transferred 10 shares to John
                               - 23 -

Cidulka, 10 shares to Charlesa Cidulka, who immediately

transferred them to her husband John, and 10 shares each to John

Joseph and Lauren, should be viewed as a separate transaction

from the redemption by the corporation of the remaining 384

shares held by the trust for decedent.    Petitioner contends that

the gifts were a separate transaction from the redemption so that

the shares involved in each transaction should be valued as

involving a minority interest.    Respondent contends that the

January 25, 1982, gifts and redemption were in fact one

transaction, so that the value of the stock transferred on

January 25, 1982, should be valued as a majority interest in

SOAI.    Respondent also contends that the gifts of stock made in

1980 and 1981 to John Cidulka and his two children were part of

an overall continuing plan and, therefore, should also be valued

as part of a majority interest in SOAI.    This record is clear

that decedent discussed with his accountant and two lawyers a

plan to dispose of his interest in SOAI to his son John Cidulka

by gift in a manner which would avoid all gift taxes and estate

taxes.    The underlying plan was that minority interests would be

valued at book value and, therefore, each gift made to each

individual would be an amount that would be less than $10,000, in

1982 and less than $3,000 in prior years when that was the

exclusion for gift taxes.    It was the plan then that the

redemption price would be the book value of the shares remaining

in the trust for decedent since that would constitute less than a
                               - 24 -

majority interest.    While, on this record, the per-share book

value probably was less than the fair market value even on a

minority interest basis, we conclude from the facts in this case

that the 40 shares given by decedent to his son and his son's

family on January 25, 1982, and the redemption of the remaining

shares held in trust for him was one transaction.      It was planned

as one transaction.   Although the record does not show the exact

time on January 25, 1982, that the gifts and the redemption

occurred, it does show that both occurred on the same day.      The

plan was that both were to occur on the same day, and the only

reason that it was done as two separate transactions was to avoid

gift taxes.   On the facts in this record, we conclude that in

effect the 424 shares of SOAI stock were given to John Cidulka on

January 25, 1982, to the extent the value of the shares exceeds

the fair market value of the note given by SOAI to decedent in

purported redemption of his stock.      The purported gift to John

Cidulka's wife Charlesa is clearly a gift to John.      For a number

of years decedent had given shares to Charlesa, who had

immediately transferred them to John.      Our inference from this

record is that the shares were given to Charlesa to be passed on

to John, and were, in fact, a gift to John.      Petitioner argues

that respondent has not offered proof that there was an

understanding between decedent and Charlesa that her shares would

be merely a pass-through of shares to John.      However, from the

fact of the number of times that this occurred, we conclude that
                               - 25 -

the inference is that there was such an understanding.

Petitioner, of course, has offered no proof that there was not

such an understanding and, since respondent determined that the

shares were gifts to John Cidulka, the burden is on petitioner to

show to the contrary.    We also conclude from the record that the

1982 transfers of 10 shares each to John Cidulka's teenage

children were not intended as gifts to them.    They did not

acknowledge receipt of these shares on the records of SOAI and

were not listed as shareholders by SOAI, nor did they ever derive

any benefit from ownership of these shares.    When the SOAI assets

were sold, they received none of the proceeds.    John Cidulka's

children were adults at the time of this trial, but were not

called as witnesses.    Based on the evidence in this case, we

conclude that on January 25, 1982, 424 shares of SOAI stock,

which constituted a majority interest, were effectively

transferred to John Cidulka and, therefore, we are valuing the

transfer of a controlling interest in SOAI to John Cidulka on

that date.   Furthermore, this Court and the Court of Appeals for

the Seventh Circuit have held that a hypothetical bifurcation of

stock for the purpose of its valuation as a minority interest

will not be recognized since it would be an easy method of

implementing a tax-avoidance scheme.    Northern Trust Co. v.

Commissioner, 87 T.C. 349, 386-388 (1986); see also Estate of

Curry v. United States, 706 F.2d 1424, 1426-1430 (7th Cir. 1983).

For this further reason we considered a majority interest in the
                               - 26 -

stock of SOAI to be the interest to be valued.    Neither party

questions the fact that a 52-percent interest, which the 424

shares represented, is a controlling interest under Ohio law.

     Both parties recognize that where a gift of property is

made, the gift tax is based on the fair market value of the

property given, which is the price at which the property would

change hands between a willing buyer and a willing seller, both

having reasonable knowledge of relevant facts.    United States v.

Cartwright, 411 U.S. 546, 551 (1973).

     Where, as here, the property given is stock in a closely

held corporation which is not listed on any exchange and of which

there have been no sales, it is difficult to determine fair

market value.    Very often fair market value can be determined by

reference to sales of stock of publicly held comparable

corporations.    However, no witness in this case, including each

of petitioner's expert witnesses and each of respondent's expert

witnesses, knew of any sale of stock of any outdoor advertising

company.     The experts offered by each party stated that

generally where there was a sale of an outdoor advertising

company, the sale would be of the assets, since the value of the

company was primarily in its leases and billboards on those

leases.    The experts offered by each of the parties stated that

there might have been some sale of stock of an outdoor

advertising company, but they knew of none.    However, they were

aware of a number of sales of the assets of outdoor advertising
                              - 27 -

companies.   They, therefore, turned to other methods of

determining the value of the SOAI stock.

     As we stated in Estate of Leyman v. Commissioner, 40 T.C.

100, 119 (1963), remanded on other grounds 344 F.2d 763 (6th Cir.

1965), in situations where it is difficult to find sales of

comparable companies, consideration may be given to the value of

the underlying assets, the earnings, dividends paid, and numerous

other factors which would bear on a determination of value.     We

recognized there, as we do here, that the opinion of experts is

of assistance, but that even though we weigh the testimony of

experts in light of their qualifications as well as the other

credible evidence in the record, we are not bound by the opinion

of any expert witness and accept or reject expert testimony in

the exercise of sound judgment.   Estate of Newhouse v.

Commissioner, 94 T.C. 193, 217 (1990).

     Here, petitioner's experts gave great weight to the book

value of SOAI in arriving at the value of the stock transferred.

However, the record is clear that book value of an outdoor

advertising company has very little relevance to the company's

fair market value, since it is the worth or market value of the

leases and billboards located thereon that creates the primary

asset value of the company.   These properties may have been

acquired many years prior to the valuation date and been

depreciated on the books even though an actual increase in value

had occurred.   Petitioner's experts attempt to back up their
                              - 28 -

valuation of the stock at book value of the assets by an income

capitalization method.   Certainly, an appropriate income

capitalization method of valuation would be probative evidence.

The income capitalization method was recognized by both

petitioner's and respondent's experts to be properly based on the

operating income of a company divided by an appropriate

capitalization rate.   While there are some differences between

the parties as to the capitalization rate, the major difference

is in a proper operating income.   The books of SOAI were not

audited, and it is difficult to ascertain a proper operating

income from the records as kept.

     The main adjustment made by petitioner's experts to

petitioner's income as reported to obtain an amount they

considered operating income was to add back to income part of the

officer's salaries paid and deducted, which they considered

excessive.   Based on this adjustment, one of petitioner's experts

arrived at an operating income for 1981 of $215,000, which, when

divided by the capitalization rate used by that expert, resulted

in a value of the company on January 25, 1982, of approximately

its book value.   Based on a study of other companies, one of

respondent's experts concluded that operating expenses would be

approximately 66 percent of revenues, and, therefore, the

operating profit would be approximately 34 percent of revenues,

or an amount for 1981 in excess of $500,000.   Dividing this

computed operating income by the capitalization rate respondent's
                               - 29 -

expert used resulted in an amount of approximately $4,470,000 as

the worth of the company on January 25, 1982.    Respondent's

expert stated that depreciation should not properly be considered

as an operating expense, and that the rent paid by SOAI was paid

to members of the Cidulka family and, therefore, was suspect.

Respondent's expert concluded that officer's salaries were

overstated and that there were other questionable items deducted

as operating expenses by SOAI in 1981.    It is clear that

petitioner's expert and respondent's expert each in effect made a

judgment determination as to the operating income of SOAI.      We

conclude that from this record an accurate operating income for

1981 cannot be determined.

     Respondent's expert took the position that since many sales

of outdoor advertising businesses were negotiated on the basis of

a multiplier of gross income or net sales which he concluded in

this case were the same, the most appropriate method and best

supported method of determining the value of the assets of SOAI

would be to apply an appropriate multiplier to the gross income

of SOAI for 1981.   The amount of net sales of SOAI as shown on

its records for each year here involved is considered to be

accurate by both parties.    After the value of the assets is

obtained by multiplying gross income or net sales by an

appropriate multiplier, certain adjustments are made for

liabilities and certain other items to arrive at the total value

of the stock.   Petitioner's experts conceded that there were
                              - 30 -

sales of assets made by a number of outdoor advertising companies

throughout the years here in issue, and that in some instances a

multiplier of the gross receipts or gross income of the company

for the year preceding the year of the sale was used to determine

the value of the assets.   However, petitioner contends that no

accurate multiplier can be determined from this record.

Petitioner recognized that one of respondent's experts, Mr.

Ruppert, had an extensive database of asset sales by outdoor

advertising companies over a 20-year period which, in many cases,

he had personally verified, but contends that the companies in

the database were not shown to be comparable to SOAI.

     This record shows that in January 1986, SOAI sold all of its

assets to Whiteco for $7 million.   This sale was at a multiplier

of 3.11, and after adjustments by respondent's expert to

eliminate amounts not allocable to the billboards and leases

owned by SOAI, was at a multiplier of 2.89.   Petitioner

strenuously objects to any weight being given to the actual sale

of the assets of SOAI contracted for in December 1985 and made in

January 1986, since there had been changes made in some of the

signs, and actually some signs added between January 1982 and

January 1986.   However, these changes and additions are reflected

to an appreciable extent in revenues received in 1985.     In 1981,

SOAI's net sales were $1,570,555 and in 1985 were $2,249,486.

While 4 years in some instances might be considered too remote to

have a real bearing on the valuation of the stock at the earlier
                              - 31 -

date, the multiplier used for the 1986 sale gives an indication

of how the value of all the SOAI assets might be determined for a

sale at fair market value at an earlier date.    This is

particularly true where, as here, some asset sales of other

companies are shown to have been made near the January 25, 1982,

valuation date at a multiplier of around the multiplier at which

SOAI's assets were sold in 1986.   The record also contains one

sale within a year of the SOAI asset sale at a multiplier

slightly greater than the multiplier determined for the SOAI

sale.   Therefore, in our view, the sale by SOAI in January 1986

of all its assets has relevance in determining an appropriate

multiplier to determine the fair market value of SOAI's assets on

January 25, 1982.

     Petitioner attacked the data used by respondent's expert to

obtain the net sales multipliers by referring to a book written

by a recognized appraiser with respect to net sale multipliers.

However, even if such an out-of-court statement could have value

in any case, the statement referred to by petitioner does not,

since it is unclear to which companies it would apply.

Respondent's witness, Mr. Ruppert, kept his database for use in

advising business clients with respect to purchases and sales of

the assets of outdoor advertising companies.    In our view, Mr.

Ruppert's database is reasonably accurate and supports his

opinion.
                              - 32 -

     The parties argue extensively as to whether there had been

any prior negotiations between decedent or John Cidulka and

Whiteco before the offer that resulted in the sale of SOAI assets

to Whiteco for $7 million in January 1986 was made.   In preparing

his report, respondent's expert, Mr. Ruppert, interviewed an

officer of Whiteco, who stated that there had been discussions

between decedent and Whiteco officials, and also between John

Cidulka and Whiteco officials, with respect to a sale of the SOAI

assets to Whiteco on the basis of a multiplier of net sales

higher than the multiplier at which the actual purchase was made.

However, the official that reported this to Mr. Ruppert was not

called as a witness by either party.

     Petitioner offered the testimony of the accountant who had

been assisting in keeping the records of SOAI for several years

prior to 1981, and thereafter until the sale by SOAI of its

assets.   This witness testified that he did not know of any

negotiations for the sale of assets of SOAI prior to about the

time of the sale.   However, he did say that in late 1985 John

Cidulka asked him to prepare a valuation of the assets of SOAI

and that he prepared what he considered a proper valuation of the

assets based on their book value which was in the vicinity of $1

million, and that when he showed it to John Cidulka, John Cidulka

told him to destroy the document.   We, therefore, do not consider

this record to show what negotiations, if any, led up to the sale

of SOAI's assets in January 1986.   We might note, however, that
                             - 33 -

if petitioner considered this fact important, petitioner could

have called a witness from Whiteco to testify to the nature of

the negotiations leading up to the sale.

     Based on this record, we conclude that the best valuation we

are able to make of the stock of SOAI at January 25, 1982, is on

the basis of the 1981 net sales multiplied by a proper multiplier

and adjusted to the value of the stock by reducing this amount

for liabilities and other necessary items.   There apparently is

no dispute between the parties as to the method used by

respondent's expert, Mr. Loe, to determine the value of the stock

from the asset value.

     Mr. Ruppert testified, based on a number of sales he

considered comparable to sales of petitioner's assets, that a

proper multiplier for the 1981 sales to arrive at the asset value

at January 25, 1982, was between 2-1/2 and 3.    He, therefore,

concluded that a proper multiplier was 2.75.    Mr. Ruppert's

records showed very few sales that resulted in multipliers below

2.5 and numerous sales at multipliers of 3 or above.    However,

based on the fact that the asset sale made by SOAI in January

1986 showed a multiplier of 2.89 for sign (plant) structures and

an overall multiplier of 3.11, and in the same year of the SOAI

sale a much larger company sold at a multiplier of 3.90, and

approximately a year later a smaller company sold at a multiplier

of 3.38, we conclude that petitioner's sale of assets in January

1986 was at the lower end of the multiplier of sales at that
                              - 34 -

time.   For this reason, we conclude that the lower end of Mr.

Ruppert's scale of 2.5 to 3 is an appropriate multiplier to be

applied to the net sales of SOAI for 1981 to obtain the fair

market value of the assets of SOAI on January 25, 1982.    We,

therefore, hold that an asset sale of SOAI on January 25, 1982,

should be at a multiplier of 2.5 applied to SOAI's net sales for

the year 1981.   The fair market value of the SOAI stock can be

ascertained from this figure by making the adjustments made by

respondent's witness, Mr. Loe.

     The parties stipulated that the value of the SOAI stock

transferred by decedent in 1980 and 1981 is the same as the value

as of January 25, 1982, subject to any discount that the Court

might determine applicable for marketability or minority interest

due to the smaller number of shares transferred.    There is not

very much in the record with respect to an appropriate amount of

either a marketability discount or minority interest discount.

Respondent, to some extent, seems to contend that the 1980 and

1981 transfers were part of the same overall plan as the 1982

transfer.   However, these transfers appear more to be a

continuation of small gifts made by decedent to his family in

prior years than part of the plan to give his son John the

majority interest in SOAI in 1982.     There is very little evidence

in the record as to an appropriate amount for a marketability

discount or a minority interest discount.    Obviously, if all of

the assets were sold, the minority shares would have the same per
                               - 35 -

share value in the distribution of the receipts from the sale as

the majority shares.   In fact, Mr. Ruppert testified in this

regard.   A marketability discount generally recognizes the

difficulty in disposing of stock in a closely held corporation,

and a minority interest discount is applied because of the lack

of control of a corporation by a minority shareholder.     A

minority shareholder could not control the selling of the assets

of the company in order to obtain the value from his stock.

Since sales of outdoor advertising companies are generally asset

sales by such a business, minority stock interests likely would

be at a discount.   See Estate of Hall v. Commissioner, 92 T.C.

312, 341 (1989).    Both respondent's and petitioner's expert

witnesses estimated a marketability discount, if one were

appropriate, from 15 to 35 percent.     Based on the testimony of

both petitioner's and respondent's experts, as well as the record

as a whole, we conclude that the minority interest given by

decedent to his family in 1980 and 1981 should carry a discount

of 25 percent for marketability and minority interest combined.

     Finally, the parties discussed whether for 1980 and 1981

decedent's gifts should be limited to one exclusion of $3,000

each year as a gift to his son.    As we said in discussing the

1982 gifts, it is clear on this record that the gifts of stock to

Charlesa Cidulka were, in fact, gifts to her husband John Cidulka

and, therefore, would not be entitled to a separate exclusion.

The situation with respect to the stock given to John Cidulka's
                                - 36 -

two teenage children is the same in 1980 and 1981 as it was in

1982, except that for 1980 and 1981 they did acknowledge receipt

of the stock on the stock register.      However, they never received

any benefits from the stock and did not receive their pro rata

distribution when the assets of the company were sold.     In other

words, the stock decedent gave to his two grandchildren was not

treated by their father, John Cidulka, as stock belonging to

them.   They were not shown as stockholders for purposes of

corporate distributions.   Based on this record, we conclude that

in 1980 and 1981, as in 1982, the gifts of stock to John

Cidulka's two children were, in effect, a gift to their father

and certainly not in substance a gift to the children.     Again, we

point out that at the time of the trial, John Joseph and Laura

were adults but were not called as witnesses.     In each of the

years 1980 and 1981 decedent was entitled to only one gift tax

exclusion.

     The final issue in this case is whether petitioner is liable

for the additions to tax for failure to file a 1982 gift tax

return and for negligence in not reporting the gifts made to John

Cidulka in 1982.   Petitioner contends that there was reasonable

cause for decedent's failure to file a gift tax return in 1982,

since his advisers, including his accountant and attorneys, had

informed him that the gifts were not of sufficient value to

require a return to be filed.    The only testimony with respect to

the advice given to decedent as to his gift tax liability is
                              - 37 -

testimony of the SOAI accountant.    He testified that based on

valuing the SOAI stock at book value he concluded that the gifts

in 1982 were not sufficient to require the filing of a return.

He stated that he had considered the redemption of decedent's

stock not to be a gift to any extent to decedent's son John

Cidulka.   There is very little in the record about the nature of

the discussions between decedent and his accountant and his

attorney or attorneys, with respect to the plan to transfer the

SOAI stock to John Cidulka without incurring any taxes.      There is

no testimony in the record with respect to what decedent

considered the value of the SOAI stock to be, and since he had

been, for a good many years, in the outdoor advertising business

and knew the nature and types of sales of assets made in that

business, it certainly cannot be assumed without evidence that he

was not personally aware that the value of the SOAI stock he

transferred in 1982 was far in excess of an amount of the gift

tax exemptions to which he would be entitled, and also aware that

the note he received from SOAI in redemption of his stock was far

less than the value of the stock.    Neither of decedent's

attorneys was called as a witness.     We certainly will not assume

without proof that they advised decedent that gift tax was based

on book value of stock.   Viewing this record as a whole, we

conclude that petitioner has failed to show that decedent acted

in good faith and made a full disclosure of all facts with

respect to the SOAI stock to his advisers.    Unless advice is as a
                              - 38 -

result of the full disclosure by a taxpayer of relevant facts, it

is not reasonable cause for failure to file a return.   See Paula

Constr. Co. v. Commissioner, 58 T.C. 1055, 1061 (1972), affd.

without published opinion 474 F.2d 1345 (5th Cir. 1973).     Because

of the failure of petitioner to establish facts sufficient to

show reasonable cause for decedent's failure to file his 1982

gift tax return, we sustain respondent's determination of the

additions to gift tax under section 6651(a)(1).   Likewise, the

evidence fails to show that decedent was unaware that the value

of the gifts he made in 1982 was sufficient to require the

payment of gift tax.   If he did have knowledge that a gift tax

was due and did not file a return showing the tax due, and the

record does not show to the contrary, the underpayment is due to

negligence.   Therefore, we sustain respondent's additions to gift

tax under section 6653(a)(1) and (2) for the year 1982.

     Because of the issues disposed of by agreement of the

parties, as well as our holdings herein,



                                    Decisions will be entered

                                    under Rule 155.
