T.C. Mem o. 2 01 4- 15 5

UNITED STAT ES TAX COURT

ESTATE O F FRANKLIN Z. ADEL L, DECEASED, KEVIN R. ADE LL, TEMPORARY CO-P ERSONAL REPRESENTATIVE, Peti ti on er v . COMM ISSI ONER OF INTERNAL REVENUE, Resp on de nt

Doc ke t No . 11 88 -1 1. Fi le d Au gu st4, 2 01 4.

St ev enSp en cer B ro wn, Den is Jo hn Co nl on , Royal B. Ma rti n, J r., an d W il li am Gib bs Su ll iv an , for

pe ti ti on er. Jo hn W . Ste ve ns an d An ge laB. Reynol ds , forres po nd en t.

MEMORANDUM FINDINGS OF FACT AND OPINION
PARIS , Ju dg e: In ano ti ce o f de fic ie nc y , res po nd en t d et erm in eda Fed eral
es ta te tax de fic ie nc y

of $ 39 ,67 3,0 96 with re sp ectto th e Est at e o f Fran kl in Z. Adel l- 2 -

[* 2] (es ta te ). Res po nd en t al so de te rm in eda se ct io n 6 66 2 subs tant ia l es ta te tax 1
va lu at io n u nd ers ta te m en t p en al ty of $1 5,2 67 ,76 8 due to a gr os s v al ua ti on
m is st at em en t as de fin edby sect io n 6 66 2( h) (2 )(C) . After c on ces si on s, the is su e rem ai ni ng forde ci si on is th e fai r m ark etva lu e o f Fran kl in Z. Adel l’s (M r. Ade ll ) 10 0% i nt eres t i n S TN.Com , Inc . (STN.Com), on Aug us t 1 3, 2 00 6, the da te of h is de ath. The Co urt m

us t al so de ci de whethe r th e subs tant ia l es ta te tax va lu at io n 2
un de rs ta te m en t p en al ty app li es . FINDINGS OF FACT So m e o f th e fac ts are s ti pu la te d a ndare s o fo un d. Th e st ip ul at io n o f fac ts , th e supp le m en ta l s ti pu lati on of f act s, the sec on d s up pl em en ta l s ti pu la ti on of f act s, th e ex hi bi ts att ach edth eret o, an d t he ex hi bi ts adm it te d a t tria l o r adm it te d b y ord er are i nc or po rat edhe rei n b y

th is refe ren ce. Unl es s o th erwi se in di cat ed , sec ti on refe ren ces are t o the Int ern al Rev enue 1 Co de ineffe ctforth e d at e o f Fran kl in Z. Adel l’s d eath, an d R ul e ref eren ces are t o th e Tax Co urt Ru le s o f Prac ti ce an d P ro cedur e. Inad di ti on to m ak in g c on ces si on s, the pa rti es ha ve furth er ad jus te d t he 2 va lu at io n i ss ue forpu rp os es of t ria l. Onit s Fo rm 70 6, Un it edSta te s Es ta te (an d Gen erat io n- Sk ip pi ng Tran sf er) Tax Return, fi le d o n No ve m be r 13 , 20 07 , th e es ta te in it ia ll y rep orte d the va lu e o f Mr. Ad el l’s i nt eres t i n S TN.Com as $ 9.3 m il li on . At tri al an d o n b rie f pe ti ti on er ar gu es th atth e v al ue of M r. Ade ll ’s STN.Com in te res t on hi s d at e o f de ath was $4 .3 m il li on . In the no ti ce o f de fic ie nc y , res po nd en t pr op os eda va lu e o f $9 2,2 77 ,00 0, fo r a p ur po rte d a dju st m en t o f $8 5,9 37 ,65 7, b ut no w res po nd en t ar gu es th atth e v al ue of M r. Ade ll ’s in te res t i n S TN.Com was $2 6,3 41 ,03 0.- 3 -

[* 3] Mr. Ad el l d ie d o n Au gu st13 , 20 06 , when he was aleg al res id en t o f Mi ch ig an . Mr. Ade ll ’s est at e is be in g p ro ba te d u nd er the laws of t he Sta te of Mi ch ig an . Kevi n R . Adel l (Ke vi n) , Mr. Ade ll ’s so n a ndth e es tate ’s co- pe rs on al rep res en ta ti ve , res id edinMi ch ig anwhen th e p et it io n was fil ed
. 3 Mr. Ad el l was m arri edto Sh aro n Ad el l, wh o d ie d b efo re h im . They ha d th ree c hi ldren , Kevi n, J ul ie Vero na , andLaur ie Fis ch grun d. OnJu ly 17, 2 00 2, M r. Ade ll crea te d the Fran kl in Z. Adel l Tru st(Ade ll Trus t). Th e trus t i ns tru m en t was
am en de d a ndres ta te d o n Oct ob er 3 1, 2 00 3. Mr . Adel l’s thr ee ch il dr enwere equa l be ne fic iarie s o f th e Ade ll Trus t. The va lu es of t he Adel l Tru st ’s ass et s ar e in cl ud edinth e v al ue of M r. Ade ll ’s gro ss est at e. One o f th e as se ts , andth e

In20 09 Mr. Ad el l’s d au gh te rs , Ju li e Vero naan d Laurie Fis ch grun d, fi le d a 3 lawsu itag ai ns t Kev in as t he pe rs on al rep res en ta ti ve of t he est at e in th e p ro ba te co urt o f Oak landCo un ty, Mi ch ig an . On Apr il 26 , 20 10 , th e Oak landCo un ty pr ob at e co urt ap po in te d J os ep h Eh rli chas the su cces so r te m po rary pers on al rep res en ta ti ve of t he est at e. On Au gu st11 , 20 10 , th e Oak landCo un ty pro ba te co urt ap po in te d M s. Vero naan d M s. Fi sc hg rundas s uc ces so r co -p ers on al rep res en ta ti ve s o f th e es tate . After r each in g aset tl em en t wi th Kevi n re ga rd in g the pr ob at e o f th e es ta te , Ms . Vero naan d M s. Fi sc hg rundwere d is ch arg edas c ope rs on al rep res en tati ve s o f th e es ta te by a cou rt o rd er d at edFeb ru ary 22 , 20 12
. Kev inwas app oi nt edas t he tem po rary co-p ers on al rep res en tati ve of the est at e o n Ja nu ary 13 , 20 11 , inpa rt, t o p et it io n t hi s C ou rt c on cern in g t he va lu e o f STN.Co m .- 4 -

[* 4] subjec t o f th e d is pu te he rei n, i s M r. Ade ll ’s 10 0% i nt eres t i n S TN.Com , Inc
. (STN.Co m), a cab le up li nk in g c om pa ny. 4 I. Back gr ou ndof S TN.Com Befo re Mr . Adel l b ecame inv ol ve d wi th cab le up li nk in g, h e in ve nt eda car do ored ge gu ardin19 52 an d ran ado or gu ardm anuf

actur in g b us in es s wi th hi s br ot he rs . In 1 97 8 M r. Ade ll de ci de d t o p ur su e anop po rtu ni ty in t el ev is io n br oa dc as ti ng . He app li edfor a te le vi si on li cen se , whi chhe rece iv ed10 y ears lat er in 19 88 . At th atti m e Mr. Ad el l’s s on , Kevi n, was fin is hi ng hi s d eg ree i n co m m un ic at io ns at Ari zo naSta te Uni ve rs ity . Mr. Ade ll , who co nt in ue d t o wo rk fo r hi s fa m il y ’s aut om ot iv e co m pa ny durin g t he da y , con vi nc edhi s s on to return ho m e to Mi ch ig anan d h el p h im bu il d atel ev is io n s ta ti on . W ith l oa ns an d m on ey fro m hi s p aren ts , Kevi n b ui ltth e te le vi si on st at io n WADL fo r hi s fa th er, Mr
. Ade ll
. WADL wenton th e ai r in 19 89 an d i ni ti al ly bro ad cas te d i nf om erci al s. 5
Inad di ti on to hi s i nt eres t i n S TN.Com , Mr. Ade ll tra ns ferr edth e fo ll owi ng 4 pr op erty to th e Ade ll Trus t dur in g h is li fet im e: Treas ury bi ll s an d a ccru edin te res t with ada te -o f-d eath v al ue of $ 4,5 04 ,52 9; a $3 .2 m il li on ho m e; Mr. Ad el l’s 1 00 % in te res t i n B irming ha m

Pro pe rti es , Inc . (Bi rm in gh am Pro pe rti es ), with adate -o fde ath v al ue of $ 96 0,1 66 ; an d M r. Ade ll ’s 86 % in te res t i n Ad el l Br oa dc as ti ng Co rp ., Inc . (Ade ll Bro ad cas ti ng ), with adate -o f-d eath v al ue of $ 6 m il li on . Ade ll Bro ad cas ti ng , a C co rp or at io n, o wne d a ndop erat edWADL. Mr. 5 Ade ll own edan86 % in te res t i n Ad el l Br oa dc as ti ng th athe tra ns ferr edto th e Ade ll Trus t dur in g h is li fe. Mr. Ad el l’s i nt eres t i n Ad el l Br oa dc as ti ng ha d adate -o f- (co nt in ue d...)- 5 -

[* 5] Sev eral y ears lat er, aft er a co m pe ti to r lo stit s af

fil ia ti on with alo cal ch an ne l, WADL was ab le to co nt ractall of t he rel ig io us pro gr ammin g t ha t was pre vi ou sl y br oa dc as te d o n the othe r ch an ne l. In19 94 Mr. Ad el l fo rm edSTN Sate ll it e Tel ev is io n Net work, In c. (STN Sat el li te ), a Nev ad a co rp or at io n t ha t p ro vi de d s at el li te up li nk in g s erv ic es . Mr. Ade ll pu rch as eda bu il di ng for hi s upl in ki ng bu si ne ss th atwas s ep arat e fro m th e WADL loc at io n. Kevi n h ire d aco m pa ny to app ly for anup li nkli cen se an d t he 6 up li nkli cen se was i ss ue d t o “ STN”. Kevi n h an dl edth e d ay -to -d ay op erat io ns 7
an d b eg anto learnab ou t the up li nk in g b us in es s b y pro vi di ng sat el li te up li nk in g se rv ic es ona co nt ractba si s fo r vario us cu st om ers , in cl ud in g Hu gh es Elec tro ni cs Co rp ., a subs id iary

of Ge ne ral Mo to rs . STN Satel li te ’s con tra ctwith Hu gh es
(...co nt inue d) 5 de ath v al ue of $ 6 m il li on . See s up ra n ot e 4
. Bi rm in gh am

Pro pe rti es , an S co rp or at io n wh ol ly owne d b y Mr. Ad el l, 6 own edth e b ui ld in g. STN.Co m pa idBirm in gh am

Pro pe rti es $2 0,0 00 a m on th in ren t. Mr . Adel l tran sf

erre d h is in te res t i n B irming ha m Pro pe rti es to th e Ade ll Trus t dur in g h is li fe, an d a s o f hi s d at e o f de ath, Bi rm in gh am Pro pe rti es ha d a va lu e o f $9 60 ,16 6. Se e supr a n ot e 4
. At tria l Kev in tes ti fie d tha t the na m e o n t he up li nkli cen se was “ STN”, 7 refe rri ng to STN Sate ll it e, bu t h e co ul d n otrem em be r whe th er h e h adch an ge d the na m e o n the li cen se to “ STN.Co m ”. Afte r STN.Co m ’s in co rp or at io n i n 1 99 9, M r. Ade ll an d Kev in us edth e n am es STN, STN.Com , andSat el li te Tele vi si on Netwo rk , Inc ., in te rch an ge ab ly.- 6 -

[* 6] Elec tro ni cs Co rp . las te d fo r two y ears , fro m 19 97 th ro ug h 1 99 9, an d was te rm in at edaro un d the ti m e Kev in saw an o pp ortu ni ty to cr eat e STN.Co m , a ne w en ti ty to o pe rat e Mr. Ad el l’s upl in ki ng bu si ne ss . Mr. Ad el l i nc or

po rat edSTN.Com

on Ju ne 29 , 19 99 , as aC co rp or at io n i n th e St at e o f Mi ch ig an . Mr. Ade ll was STN.Co m ’s so le sh areh ol de r un ti l J ul y 17 , 20 02 , when he tra ns ferr edhi s 1 00 % in te res t i n S TN.Com co ns is ti ng of 1 ,00 0 sh ares of c omm onst oc k t o the Adel l Tru st . From th e d at e o f in co rp or at io n th ro ug h the da te of M r. Ade ll ’s dea th , STN.Com ’s bo ardof d ire ct or s i nc lu de d M r. Ade ll , Kevi n, an d R al ph G. Lam et i. Kevi n s erv edas S TN.Com ’s pre si de nt , bu t 8 he ne ve r ha d a n e m

pl oym en t ag reem en t o r a n on co m pe te ag reem en t wi th STN.Co m . STN.Com ’s so le bu si ne ss pu rp os e was to bro ad cas t an urb anrel ig io us pr og ram ch anne l tha t Kev in na m ed“ The W or d Net work” (The W or d)
.

9

Mr. Lam et i, wh o i s a c ert ifi edpubl ic acco un tantan d h as a la w deg ree, d id 8 al l o f th e acc ount in g wo rkforMr. Ad el l an d h is fam il y . Mr. Lam et i’s fi rm pr ov id edacco un ti ng servi ces forSTN.Com
. On Fo rm 99 0, Re tu rnof Org an iz at io n Ex em ptFro m Inc om e Tax , Mr. Ade ll 9 an d Kev in sp eci fie d the bro ad cas ti ng of “ urba n re li gi ou s p ro gr am s” as Th e Word ’s ex em ptpu rp os e. Fo r co ns is te nc y , th e Co urt wi ll ad op t the term fro m th e Fo rm 99 0 wh ende sc rib in g the pro gr amm in g o f STN.Co m .- 7 -

[* 7] II. STN.Co m

an d Th e Word Befo re Th e Word , Kevi n was lo ok in g fo r pr og ramm in g c on te ntto crea te an en te rta in m en t ch an ne l. He p it ch edva rio us id eas fora ch an ne l, s uc h a s a 2 4- ho ur ch an ne l d oc um en ti ng Gene ral Mo to rs cars an d m anuf actur in g s in ce the co m

pa ny was he ad qu art eredinMi ch ig an , bu t tho se id eas ne ve r go t o ff the gro un d. Kev in
was fam il iar with re li gi ou s p ro gr amm in g s o h e d eci de d t o c reat e a 2 4- ho urst at io n br oa dc as ti ng urb anrel ig io us m in is tri es an d g os pe l m us ic , whi chhe cal le d Th e W or d. To ga in supp ort fo r The W or d, Kev in m etwith re li gi ou s l ead ers inth e Detr oi t ar ea, i nc lu di ng Bis ho p C ha rle s Haywoo d El li s, an d R ev eren d J es se Ja ck so n, Sr ., inCh ic ag o. Th ey ag reedto he lp Kevi n l au nc h Th e Word
. InOcto be r 19 99 Mr. Ad el l, Kev in , Mr. Lam et i, Re v. J ack so n, an d B is ho p Ell is wentto Los Ang el es to m eetwith the pre si de ntof Di recTV ab ou t Th e Word
. Kev inpre se nt edhi s i de a fo r a 2 4- ho ururb anrel ig io us pro gr am ch an ne l, an d R ev . Ja ck so n a ndBis ho p El li s ex pl ai ne d t he ne edforurb anm in is tri es to reac h a
na ti on al au di en ce. The Dire cTV rep res en ta ti ve s wer e in te res te d i n b ro ad cas ti ng The W or d a ndask edKevi n t o p rep are abu si ne ss pl an . They al so ga ve Kevi n a de ad li ne forcreati ng The Word , whi chha d t o b e a n onpr of iten ti ty in o rd er t o u se th e av ai labl e b ro ad cas t s pa ce.- 8 -

[* 8] On Oct ob er 2 7, 1 99 9, Kev in an d M r. Ade ll in co rp or at edW or ldRel ig io us Rel ie f as a Mi ch ig anno np ro fitto op erat e as The Word . Accor di ng to it s arti cl es of in co rp or at io n, Th e Wordwas o rg an iz edex cl us iv el y forch ari tabl e, educ at io na l,
an d s ci en ti fic pu rp os es as d es cri be d i n s ect io n 5 01 (c)( 3) , andno pa rt o f it s as se ts
orne t ea rn in gs co ul d i nu re t o the be ne fitof o r be di st rib ut ab le to it s d ire ct or s, of fic ers , or o th er p riv at e p ers on s. Mr. Ade ll was the pre si de ntan d adi rect orof 1 0 The W or d, an d Kev in was the tre as ur er, s ecre tary , anda di rect or of Th e Word
. 1 1 STN.Co m

pu rch as edan d o pe rat edth e equi pm en t u se d t o upl in k Th e Word ’s
urba n re li gi ou s p ro gr amm in g a ndpro vi de d 3 0 t o 3 5 e m pl oyees t o b ro ad cas t Th e W or d. OnNov em

be r 24 , 19 99 , The Wordan d S TN.Com si gn eda Serv ic es an d Faci li ti es Agre em en t (s erv ic es ag reem en t) i n wh ic h S TN.Com ag reedto pro vi de

“ su chex ecu ti ve , m an ag em en t, l eg al , tec hn ic al , supe rv is ory , adm in is tra ti ve ,
Whe n Kev in co nt act edm in is te rs ab ou t p ro gr amm in g c on te ntan d c ab le 1 0 co m pa ni es forbro ad cas ti ng op po rtu ni ti es , he was oft enask edwhet he r own ers hi p in The Wordwas a va il ab le . Kevi n i nd ic at edth atbe cau se The Wordwas a no np ro fit , th e m in is te rs an d c ab le co m pani es co ul d n otrece iv e anown ers hi p in te res t. Unt il Mr. Ad el l’s d at e o f de ath i n Au gu st20 06 , Mr. Ade ll an d Kev in were

1 1 th e o nl y em pl oyees o f The W or d. Acco rd in g t o i ts Fo rm 10 23 , App li cat io n fo r Rec og ni ti on of Ex em

pt io n Un de r Sec ti on 50 1( c)(3 ) of th e In te rn al Rev enue Co de , The W or d re pr es en te d tha t i t wo ul d n otpro vi de co m pe ns at io n t o i ts off

ic ers an d di rect or s. Ho wev er, The W or d’s arti cl es of i nc or po rat io n p ro vi de th atitm ay pa y reas on ab le co m

pe ns at io n fo r se rv ic es .- 9 -

[* 9] acco un ti ng , cle ric al , andothe r se rv ic es an d s uc h fa ci li ti es as * * * [The W or d] m ay

reas on ab ly requ ire inord er t o e ffec ti ve ly runit s o pe rat io ns , as reque st edfro m

ti m e to ti m e b y

th e Bo ardof Di rect or s o r th e Pre si de ntof * * * [The W or d]”. In c on si de rat io n, Th e Wordag reedto pay STN.Com

a m on th ly pr og ram m in g fe e equa l t o “ th e le ss er o f actua l co stor n in ety -fi ve pe rcen t o f ne t pr og ram m in g re ve nu e rec ei ve d b y * * * [Th e Word ] in a on e m on th pe rio d” . The pa rti es ag reedth atth e p ro gr amm in g fe e wou ldno t ex ceedSTN.Com ’s “ actua l di rectco st s an d a ll owabl e in di rectco st s”
. 1 2 The servi ces ag reem en t was sch edul edto tak e eff ecton Feb ru ary 1, 2 00 0,
an d t erm in at edup on th e ear li es t o f: (1 ) m utua l wri tt enco ns en t o f th e p art ie s; (2) te rm in at io n o f The W or d’s ri gh t t o u se th e Dir ecTV ch an ne l; (3) The Word ’s fai lu re t o p ay

th e m on th ly pro gr amm in g fe e wit hi n fi ve bu si ne ss da y s af te r th e due da te ; o r (4 ) The W or d’s ex erci se of a n o pt io n t o t erm in at e th e ag reem en t i f STN.Co m

fai le d t o tran sm itThe Word ’s pro gr am m in g t o t he Dire cTV ch an ne l fo r

Acco rd in g t o the servi ces ag reem en t, the co st s m us t b e rea so nabl e an d 1 2 in cl ud e: “ (a) R eas on ab le am ou nt s p ai d t o a ll in de pe nd en t co nt ract or s * * * (b) Rea so nabl e d ire ctco st s * * * (c) A rea so nabl e al lo cat io n o f sa larie s, wag es , em pl oyee be ne fit s, an d the em pl oyer’s sh are o f pa yro ll tax es * * *; an d (d ) A reas on ab le all oc at io n o f ov erh eadco st s”
.- 10 -

[* 10 ] a sp eci fie d l en gt h o f ti m e. Mr. Ade ll si gn edth e se rv ic es ag reem en t as 1 3 pr es id en t o f The W or d, an d Kev in si gn edth e ag reem en t as pre si de ntof S TN Sat el li te . 1 4 On o r aro un d No ve m

be r 26 , 19 99 , Kevi n a ndMr. Ad el l fi le d Th e Word ’s Fo rm 10 23 . Accor di ng to th e Fo rm 10 23 , The Wordrece iv edanora l co m m it m en t fro m Dire cTV to bro ad cas t i ts no np ro fitpro gr amm in g, an d i t i nt en de d t o o fferit s pr og ram m in g t o o th er l arg e cab le co m pa ni es . Accor di ng to th e o ral ag reem en t, The W or d was res po ns ib le forarrang in g a ll pro gr am m in g c on te nt , in cl ud in g co nt act in g m in is te rs , cle rg y , andot he r rel ig io us lea de rs who ha d l oc al tel ev is io n pr og ram s an d o ffer in g t o b ro ad cas t the ir p ro gr am s fo r a reduc edfee. STN.Co m was res po ns ib le forsen di ng The Word ’s si gn al to a sa te ll it e, an d Di recTV ag reed to tak e th e p ro gr am s o ff the sat el li te an d b ro ad cas t the m na ti on al ly. Als o o n the Fo rm

10 23 , The Wordrep res en te d t ha t i ts pro gr amm in g wo ul d be stric tl y

no nc omm erci al an d wo ul d i nc lu de educ at io na l an d t he ol og ic al

The servi ce co nt ractgi ve s Th e Wordanop ti on to term in at e th e ag reem en t 1 3 if S TN.Com

fai ls to tra ns m itpro gr amm in g t o t he Dire cTV ch an ne l fo r “ m or e th an 48 ho ur s fo r se ve n (7 ) orm or e co ns ecu ti ve da y s, dur in g t he term of t hi s Agr eem en t” , whi chth e Co urt fi nd s ambig uo us . At tria l Kev in tes ti fie d tha t i t was a cl eri cal m is ta ke th atSTN Sate ll it e was 1 4 li st edin st eadof S TN.Com . From 20 00 th ro ug h M r. Ade ll ’s dat e o f de ath i n 2 00 6, Mr. Ad el l was pre si de ntof Th e Wordan d Kev in was p res id en t o f STN.Co m .- 11 -

[* 11 ] bro ad cas ts . The Wordals o d is cl os edth atMr. Ad el l an d Kev in , who were of fic ers an d d ire ct or s o f The W or d, wer e p rin ci pa ls of t wo en ti ti es , Adel l Bro ad cas ti ng an d S TN.Com , th atag reedto fun d Th e Word ’s st artup co st s. Th e W or d re pr es en te d tha t an y fin an ci al trans act io ns with Ad el l Br oa dc as ti ng an d STN.Co m

wou ldbe at a rm ’s len gt h a ndbe lo w cos t t o p rev en t an y pri va te in ur em en t, an d a ny un rei m bu rs edex pe ns e in cu rredby STN. Co m wou ldbe tre at ed
as a do na ti on . Bro ad cas ts of Th e Wordbe ga n o n F eb ru ary 14 , 20 00 ; an d o n M ay 11 , 20 00 , The Wordrece iv edit s s ect io n 5 01 (c)( 3) tax -ex em ptst atus . Purs uantto th e se rv ic es ag reem en t, an d c on ti nu in g t hr ou gh Mr. Ad el l’s d at e of de ath, Th e Wordpa idSTN.Com at l eas t 9 5% o f it s re ve nu e eac h m on th
. The 1 5 W or d’s p rimary

so ur ce o f rev enue was fr om bro ad cas ti ng co nt ract s tha t Kev in , as a rep res en ta ti ve of Th e Word , neg ot ia te d a nden te redin to with m in is te rs an d t he ir rel ig io us affi li at es . STN.Com ’s pri m ary so ur ce o f in co m e cam e fro m th e p ro gr am fees itrece iv edfro m

The Word , STN.Com ’s on ly cus to m er. 1 6
In20 02 an d 2 00 3 Th e Word ’s pro gr amm in g p aym en t t o S TN.Com 1 5 ex ceed ed10 0% o f it s re po rte d p ro gr amm in g re ve nu es . At tri al Mr. Lam et i in di cat edth atth e o ne -m on th di ffer en ce i n t ax y eare nd s fo r The W or d a nd STN.Co m --Th e Word ’s end edinMay andSTN.Com ’s end edinJune --co ul d h av e cau se d the ex ces s p aym en ts to STN.Com in20 02 an d 2 00 3. Acco rd in g t o the no te s t o i ts fin an ci al st at em en ts forth e ta x years e nd in g 1 6 (TYE) Ju ne 30 , 20 02 th ro ug h 2 00 6, STN.Co m de riv edit s en ti re b ro ad cas t re ve nu e

(co nt in ue d...)- 12 -

[* 12 ] The Wordan d S TN.Com fil edreturns forth e y ears lea di ng up to Mr. Ade ll ’s dea th . The Wordfil edFo rm s 9 90 forit s t ax y ears en di ng (TYE) May 31, 1 7 20 02 th ro ug h 2 00 6, an d re po rte d t he fol lo win g a m ou nt s i n b ro ad cas ti ng rev enue an d p ro gr amm in g fe es pa idto STN.Com : TYE The W or d’s re ve nu e STN.Co m ’s fee STN.Co m ’s gro ss rece ip ts 20 02 $7 ,63 9,7 72 $7 ,66 8,0 16 $7 ,89 4,1 64 20 03 9,3 07 ,53 2 9,4 90 ,92 3 9,0 79 ,73 4 20 04 10 ,76 7,4 73 10 ,22 9,0 99 10 ,46 2,0 62 20 05 14 ,09 9,1 95 13 ,39 4,2 35 13 ,62 7,8 70 20 06 16 ,77 0,9 85 15 ,93 2,4 36 15 ,86 6,9 95 Inad di ti on to pa y in g S TN.Com ’s fee, The W or d a ls o re po rte d c om pe ns at io n pa idto it s o ffi cers li st edon it s Fo rm s 9 90 as: Mr. Ade ll , CEO; 1 5 h ou rs /wee k de vo te d t o p os it io n a ndKevi n, p res id en t; 10 ho ur s/weekde vo te d t o p os it io n.

(...co nt in ue d) 1 6 fro m The Word , whi ch“pa y s 9 5% o f it s b ro ad cas ti ng rev enue to * * * [STN.Co m ]”. The no te s d o n otm en ti on th atSTN.Com ’s bro ad cas ti ng rev enue is li mit edto th e le ss er o f it s co st s o r 95 % of Th e Word ’s bro ad cas ti ng rev enue , as pr ov id edinth e se rv ic es ag reem en t. The pa rti es so m et im es us e th e te rm “ fis cal y ear e nd in g” in st eadof TYE. 1 7 The Co urt wi ll us e TYE for c on si st en cy .- 13 -

[* 13 ] Co m pe ns at io n fr om

The Word TYE Mr. Ad el l, CEO

15 hrs ./wk . dev ot edto po si ti on Kev in , pre si de nt 1 10 hrs ./wk . dev ot edto po si ti on 20 02 $4 5,8 33 $4 5,8 33 20 03 50 ,00 0 50 ,00 0 20 04 50 ,00 0 50 ,00 0 20 05 50 ,00 0 50 ,00 0 20 06 50 ,00 0 50 ,00 0 The di sc rep an cy

inFo rm 99 0 o ffi cer t it le s, i .e., Mr. Ade ll , CEO, andKevi n, 1 pr es id en t, was no t ad dr es se d i n t es ti m on y or o th er ex hi bi ts . The o rig in al Fo rm 10 23 li st edMr. Ad el l as pre si de ntan d Kev in as t reas ur er an d s ecre tary . See supr a p p. 8 -1 0 a ndno te 11 for di sc us si on on Fo rm

10 23 ap pl ic at io n a ndservi ce ag reem en t. STN.Co m

fil edFo rm s 1 12 0, U.S. Co rp or at io n In co m e Tax Return, fo r it s TYE Jun e 3 0, 2 00 2 thr ou gh 20 06 , bas edon fin an ci al st at em en ts pre pa redby Mr. Lam et i’s ac co un ti ng firm s. Acco rd in g t o i ts co rp or at e returns an d fi na nc ia l st at em en ts , STN.Com

rep orte d the fol lo win g a m ount s i n g ro ss rece ip ts , ret ai ne d
earn in gs , sh areh ol de r equi ty, an d a ss et s: TYE Gro ss rece ip ts Ret ai ne d e arn in gs Sh areh ol de r equi ty Ass et s 20 02 $7 ,89 4,1 64 $5 57 ,64 2 $5 58 ,64 3 $2 ,24 2,0 52 1 1 20 03 9,0 79 ,73 4 1,4 16 ,58 7 1,4 17 ,58 7 3,0 68 ,33 2 20 04 10 ,46 2,0 62 2,7 20 ,93 7 2,7 21 ,93 6 3,6 23 ,77 8 1 1- 14 -

[* 14 ] 20 05 13 ,62 7,8 70 3,5 21 ,19 9 3,5 22 ,19 9 5,6 31 ,22 3 1 20 06 15 ,86 6,9 95 3,8 42 ,48 8 3,8 43 ,48 8 4,9 22 ,73 2 The Co urt wi ll ass um e th atm in ordi ffer en ces be twee n t he se nu m be rs as 1 th ey ap pe ar o n the tax returns an d o n the fin an ci al st at em en ts are due to rou nd in g. STN.Co m

us edth e p ro gr am

fees itrece iv edfro m

The Wordto pa y

it s ex pe ns es . STN.Com ’s exp en se s i nc lu de d am on th ly $20 ,00 0 re ntpa ym en t t o M r. Ade ll ’s who ll y

own edS co rp or at io n, Bi rm in gh am Pro pe rti es , andco m

pe ns at io n t o it s o ffi cers an d e m

pl oyees. STN.Co m ’s lar ge stex pe ns e was co m pe ns at io n fo r Mr. Ade ll an d Kev in
. Duri ng it s TYE inJu ne 20 02 th ro ug h 2 00 6, STN.Co m pa id 1 8 Mr. Ad el l an d Kev in th e fo ll owi ng am ou nt s i n c om pe ns at io n: Co m pe ns at io n fr om

STN.Com TYE Mr. Ad el l Kev in 20 02 $2 ,05 0,0 00 $1 ,11 5,0 00 20 03 2,3 73 ,50 7 1,2 07 ,15 5 20 04 3,9 78 ,14 3 22 3,4 88 20 05 6,7 51 ,94 8 24 1,3 36 20 06 7,3 54 ,59 4 1,2 92 ,75 8

The se am ou nt s d o n otin cl ud e n ot es rece iv ab le fro m Kevi n t o S TN.Com , 1 8 m or e sp eci fic al ly des cri be d i nf ra n ot e 2 2.- 15 -

[* 15 ] Mr. Ad el l’s d at e o f de ath was Aug us t 1 3, 2 00 6, s o fo r it s TYE Ju ne 20 07 STN.Co m

pa idMr. Ad el l’s co m

pe ns at io n o f $1 ,15 7,9 76 to th e Ade ll Trus t. In TYE Jun e 2 00 7 a nd20 08 STN.Com pa idKevi n c om

pe ns at io n o f $9 ,73 4,6 43 an d $8 ,20 4,0 66 , res pe ct iv el y . 1 9 Inad di ti on to ren t an d c om pe ns at io n, STN.Co m

m ad e se ve ral mis cel lane ou s pa ym en ts th atwere p rimaril y forth e p ers on al be ne fitof M r. Ade ll an d Kev in
. STN.Co m

lea se d l ux ury

cars , in cl ud in g B en tl ey s an d R ol ls -Ro y ces , us edfor pe rs on al an d wo rkpu rp os es by Mr. Adel l, Kev in , andit s o th er em pl oyees. 2 0 STN.Co m

als o h el pe d M r. Ade ll an d Kev in pu rch as e an d m ai nt ai n re al est at e. Fo r

STN.Co m

am en de d i ts co rp or at e returns for 20 07 an d 2 00 8 t o i nc reas e 1 9 de du ct io ns on it s o rig in al returns to rech arac te riz e d iv id en d p aym en ts as co m pe ns at io n t o Kev in , th ereb y in crea si ng hi s co m

pe ns at io n fo r th os e ta x years. See i nf ra n ot e 3 0. Dur in g TYE Ju ne 20 03 th ro ug h 2 00 7 S TN.Com ha d p rep ai d aut o l eas e 2 0 ex pe ns es of $ 27 ,14 5, $ 10 3,0 42 , $1 14 ,89 5, $ 11 8,0 01 , and$4 8,9 69 , res pe ct iv el y . Acco rd in g t o the est at e’s return, M r. Ade ll own eda Ben tl ey Co nt in en ta l GT th at ha d adate -o f-d eath v al ue of $ 13 0,0 00 an d t wo Ro ll s- Ro y ces with d at e-o f-d eath va lu es of $ 22 5,0 00 forth e Ph an to m an d $ 13 0,0 00 forth e Co rn ic he . As of Ju ne 20 09 Kevi n re cei ve d u se of o ne co m pa ny owne d o r le as edlu xu ry car tha t was no t in cl ud edas wa ge in co m e an d n in e o th er l ux ury cars th atwere i nc lu de d a s p artof hi s co m pe ns at io n fr om

STN.Com . The es ta te ob jecte d t o t hi s ev id en ce o n t he ba si s o f rel ev an cy . The Co urt re se rv edrul in g o n t hi s o bjec ti on , andno w ov erru le s itto th e ex te ntth atth e ev id en ce i s re le vantto sh ow tha t STN.Co m was i nd eeda pr of it ab le co rp or at io n dur in g a ndimm ed ia te ly after M r. Ade ll ’s li fe.- 16 -

[* 16 ] ex am

pl e, STN.Co m

ga ve m on ey

to Mr. Ad el l an d Kev in to pu rch as e a co nd om in iu m

inLos Ang el es , Cal ifo rn ia , andgu aran te edth e m ortg ag e. 2 1 STN.Co m

pu rch as edhi gh -en d fu rn is hi ng s fo r th e co nd om in iu m an d fo r Mr. Ade ll ’s ho m e in Mi ch ig anan d p ai d a ll ex pe ns es , in cl ud in g t he m ortg ag e, in te res t,
an d i ns ur an ce, rel at edto Kevi n’s s eco ndho m e in Flo rid a. In20 02 STN.Com pa id $3 00 ,00 0 t owa rdKevi n’s h om e inFlo rid a. Fro m Ju ly 200 2 t hr ou ghJu ne 20 03 STN.Co m

pa idbe twee n $ 30 0,0 00 an d $ 40 0,0 00 of Ke vi n’s p ers on al leg al fees for li ti ga ti on in vo lv in g adi sp ut e wit h aho m e co nt ract or . In 2 00 6 M r. Ade ll pa ida 2 2 $6 m il li on jud gm en t en te redag ai ns t Kev in us in g fu nd s fr om Mr. Ad el l’s s al ary at

Kev incla im edth atth e m on ey rece iv edfro m

STN.Com

was re po rte d a s 2 1 wag e in co m e to Mr. Ad el l an d Kev in . The es ta te di d n otpro vi de ev id en ce supp orti ng Kevi n’s cl ai m s an d i ns te adob jecte d o n t he gro un ds of r el ev an cy . The Co urt o ve rru le s the est at e’s ob jecti on an d fi nd s the ev id en ce re le va ntto sh ow tha t STN.Co m

was i nd eeda pr of

it ab le co rp or at io n. As of M r. Ade ll ’s dat e o f de ath, th e co nd om in iu m

ha d arep orte d v al ue of $ 1,6 75 ,57 9. The se pa y

m en ts were l at er re ch arac te riz edas l oans fro m STN.Com

to 2 2 Kev inwhi chth e fi nanc ia l s ta te m en ts sh ow wer e subs tant ia ll y rep ai d a fte r Mr. Ade ll ’s dea th . Thes e lo an s t o Kev in were re pr es en te d b y de m an d p ro mis sa ry no te s. Th e m ax im

um cu m ul at iv e b al an ce o f th e n ot es was $ 98 5,0 10 , and STN.Co m ’s fin an ci al st at em en ts sh owe d yearen d b al an ces du e fro m Kevi n i n the fo ll owi ng am ou nt s fo r TYE June 20 03 th ro ug h 2 00 7: $4 30 ,08 5, $ 94 1,9 39 , $9 55 ,85 8, $ 96 9,7 78 an d $ 26 4,6 62 , res pe ct iv el y .- 17 -

[* 17 ] STN.Co m . Kevi n fi le d fo r ba nkrupt cy an d m ov edto Flo rid a in20 03 , 2 3 whe re h e co nt in ue s t o m ai nt ai n ares id en ce. 2 4 Mr. Ad el l’s d au gh te rs als o p ers on al ly ben efi te d fr om STN.Com . Duri ng 20 06 th ro ug h 2 00 8 the Adel l Tru stm ad e p aym en ts to Ms . Vero naan d M s. Fi sc hg rundwhi chwere fu nd edby div id en d p aym en ts m ad e fro m STN.Com

to th e Ade ll Trus t. In a dd it io n, al th ou gh STN.Com ne ve r em pl oyed Ms . Vero na , Mr. 2 5 Ade ll , in di vi du al ly andas t ru st ee o f th e Ade ll Trus t, d ire ct edSTN.Com to pa y Ms
. Vero na ’s hea lth i ns ur an ce co ve rag e fro m ap pr ox im at el y

20 01 un ti l M r. Ade ll ’s de ath i n 2 00 6. STN.Co m co nt in ue d t he pa ym en ts un ti l 2 00 7. Afte r Mr. Ad el l’s d eath i n 2 00 6 Kev in was app oi nt edch ie f ex ecu ti ve of fic er, i n a dd it io n t o a lre ady be in g p res id en t o f STN.Co m , andMr. Lam et i was

On the est at e’s or ig in al Fo rm 70 6, the jud gm en t was rep orte d u nd er 2 3 Sch edul e F, Oth er Mi sc el lane ou s Pr op erty , as alo anrece iv ab le an d a ss etof t he es ta te with ava lu e o f $6 ,66 7,0 18 . On th e es ta te ’s firs t am en de d F orm 70 6, the jud gm en t was rech arac te riz edas agi ft f ro m Mr. Ad el l t o Kev in inth e am ou ntof $6 ,65 5,0 18 an d re po rte d u nd er Sc he du le G, Trans fers Duri ng Deced en t’s Lif e. The parti es ha ve ag reedto tre atth e $ 6.6 m il li on pa ym en t as a gi ft. Se e in fra p . 21 ; se e al so Est at e o f Ade ll v. Co m m is si on er, T.C. Mem o. 2 01 4- 89
. Insubs eque ntgi ft t ax li ti ga ti on , Kevi n c la im edFlo rid a as th e th en -cu rren t 2 4 res id en ce o f th e p ers on al rep res en ta ti ve . The Co urt re co gn iz es th atth e rel at ed cas es no w li e in di ffer en t ap pe ll at e juri sd ic ti on s. In20 08 th es e p aym en ts were re ch arac te riz edas c om pe ns at io n p ai d b y 2 5 STN.Co m

to Kevi n, wh o the n l oa ne d t he fun ds to th e Ade ll Trus t.- 18 -

[* 18 ] na m edth e ch ie f fi nanc ia l o ffi cer o f STN.Co m . Kevi n c on ti nu edto op erat e STN.Co m

inth e sa m e m an ne r as be fo re Mr . Adel l d ie d. In fa ct , STN.Com 2 6
co nt in ue d t o g en erat e si gn ifi can t g ro ss rece ip ts forit s TYE Ju ne 20 07 an d 2 00 8
an d re po rte d g ro ss rece ip ts of $ 18 ,51 0,9 69 an d $ 17 ,98 7,7 01 , res pe ct iv el y . InSep te m

be r 20 08 Ms . Vero naan d M s. Fi sc hg rundfil eda la wsu itinth e pr ob at e co urt o f Oak landCo un ty, Mi ch ig an , aga in stKevi n a s tru st ee o f th e Ade ll Trus t. In20 09 th ey

fil eda se co ndlaws ui t i n the pro ba te co urt ag ai ns t Kev in as pe rs on al rep res en tati ve inadm in is tra ti on of t he est at e. Becaus e th e p ro ba te co urt li ti ga ti on affe ct edSTN.Com , Kevi n t es ti fie d t ha t h e cre at eda ne w com pa ny, In te rn at io na l Br oa dc as ti ng Serv ic es , Inc . (In te rn at io na l Br oa dc as ti ng ), to pro vi de th e upl in ki ng servi ces The Wordne ed edto co nt inue it s b us in es s. Kev in fil edart ic le s o f in co rp or at io n fo r In te rn at io na l Br oa dc as ti ng on Ju ne 30 , 20 10 . He is th e so le own er. On o r aro un d J ul y 10 , 20 10 , alm os t fo ury ears aft er Mr . Adel l’s d eath, Kev inres ig ne d fr om STN.Com , andall of S TN.Com ’s
em pl oyees e xc ep t fo r on e res ig ne d a ndbe cam e em pl oyees o f In te rn at io na l Not ab ly, Kev in co nt in ue d t o u se STN.Com forhi s p ers on al be ne fit . In 2 6 Sep te m be r 20 07 , us in g a$2 .2 m il li on ba nklo an , STN.Com pu rch as edan85 -fo ot y ach t, wh ic h Kev in ke ptat h is ho m e in Flo rid a an d u se d fo r pe rs on al pu rp os es . STN.Co m

als o p ai d fo r th e cap ta in an d c rew o f th e y ach t. In20 08 STN.Com adva nc ed$7 01 ,00 0 t o Kev in to setup hi s co m pa ny, N ov i Trad e Cen te r, LLC. STN.Co m

advanc eda to ta l o f $1 ,49 1,6 26 .48 to Nov i Trad e Cen te r, LLC, from Ja nu ary 20 07 th ro ug h J un e 2 00 8.- 19 -

[* 19 ] Bro ad cas ti ng . Beg in ni ng inJu ly 201 0 Th e Wordch an ge d i ts up li nk in g pr ov id er fro m

STN.Com

to Int ern at io na l Br oa dc as ti ng . On Ju ly 20, 2 01 0, Th e W or d a ndInt ern at io na l Br oa dc as ti ng si gn eda ne w Serv ic es an d F aci li ti es Agr eem en t tha t was id en ti cal to th e o ne be twee n S TN.Com an d Th e Word . Mr. Lam et i s ig ne d the ne w agr eem en t o n b eh al f of The Word , andKevi n s ig ne d o n be ha lf o f In te rn at io na l Br oa dc as ti ng . At th is ti m e, al l o f th e upl in ki ng equi pm en t
own edby STN. Co m

was tran sf

erre d t o Th e Wordwitho utco ns id erat io n, an d STN.Co m

ceas edop erat io ns as o f 20 10
. III. Est at e Tax Return Mr. Ad el l d ie d o n Au gu st13 , 20 06 . Kevi n was ap po in te d p ers on al rep res en ta ti ve of t he est at e an d tru st ee o f th e Ade ll Trus t. On Ap ril 26 , 20 07 , 2 7
res po nd en t re cei ve d the est at e’s Fo rm 47 68 , App li cat io n fo r Ext en si on of Ti m e to Fi le a Return a nd/o r Pay U .S. Est at e (an d Gen erat io n- Sk ip pi ng Tran sf er) Tax es , reque st in g asi x- m on th ex te ns io n t o p ay it s es ta te tax li ab il ity . 2 8
Mr. Lam et i was th e ap po in te d t ru st ee o f th e Ade ll Trus t o n Au gu st13 , 2 7 20 06 , bu t h e res ig ne d a ndap po in te d Kev in as t ru st ee o n Au gu st14 , 20 06 . Kevi n se rv edas t ru st ee o f th e Ade ll Trus t u nt il Sep te m be r 1, 2 00 9. The est at e ex pe ct edto m ak e a s ec. 6 16 6 e le ct io n c om pu ti ng th e d eferred 2 8 an d n on de ferr edpo rti on s o f th e es ta te tax on th e b as is of the po rti on att rib ut ab le to th e cl os el y

he ldbu si ne ss es an d was wait in g fo r th e v al ua ti on s o f Mr. Ad el l’s cl os el y he ldbu si ne ss es , Adel l Br oa dc as ti ng , Birm in gh am Pro pe rti es , and

(co nt in ue d...)- 20 -

[* 20 ] On No ve m

be r 13 , 20 07 , th e es ta te fil eda Fo rm 70 6 re po rti ng anest at e ta x du e o f $1 5,2 88 ,51 7. In cl ud edwith t he Fo rm 70 6 was a st at em en t i n wh ic h t he
es ta te ele ct edun de r se ct io n 6 16 6 t o d efer$7 ,19 3,9 60 of the to ta l es ta te tax at tri bu tabl e to th e cl os el y he ldbu si ne ss es ’ as se ts for fiv e y ears an d t he n p ay

th e de ferr edest at e ta x i n 1 0 a nn ua l i ns ta ll m en ts . The es ta te pa idth e n on de ferr ed 2 9
es ta te tax of $ 8,0 94 ,55 7 wh enitfil edth e Fo rm 70 6 o n No ve m

be r 13 , 20 07
. 3 0 Att ach edto th e es ta te ’s return was , in te r al ia , a Sch edul e G sh owi ng Mr. Ade ll ’s trans fers to th e Ade ll Trus t dur in g h is li fe. Am on g t he tra ns fers were Mr
. (...co nt in ue d) 2 8 STN.Co m . The p art ie s h av e n otad dr es se d wh ethe r an y est at e ta x l ie n p ro vi si on s requi redun de r se cs . 61 66 an d 6 32 4A wer e v io la te d wh enSTN.Com tra ns ferr edall of it s upl in ki ng equi pm en t wi th ou t co ns id erat io n. Fo r a d is cu ss io n o f th e es ta te ’s sec . 61 66 ele ct io n a ndit s p et it io n t o t he 2 9 Co urt re ga rd in g the same, see Est at e o f Ade ll v. Co m m is si on er, T.C. Mem o. 2 01 3- 22 8. STN.Co m

ex ecu te d a$3 ,04 0,0 00 cap it al st oc k re de m pt io n t o p ay

th e 3 0 no nd eferredpo rti on of t he est at e ta x. Inad di ti on , onor a ro un d No ve m be r 9, 20 07 , STN.Com

lo an edth e Ade ll Trus t $ 1.8 m il li on to pa y th e es ta te ’s in co m e ta x li ab il ity . The p aym en t was ori gi na ll y in te nd edto be a st oc k re de m pt io n, b utin 20 08 itwas re ch arac te riz edas c om pe ns at io n p ai d b y

STN.Com

to Kevi n, wh ic h Kev inth enlo an edto th e Ade ll Trus t. The pa rti es ha ve no t ad dr es se d t he tax co ns eque nc es un de r se c. 30 3 i n re ga rdto di st rib ut io ns inred em pt io n o f st oc k t o pa y de ath t ax es ve rs us rech arac te riz in g t he am ou ntas c om pe ns at io n. Th e o rig in al es ta te tax return re fle ct eda $9 ,30 0- pe r-u ni t v al ue of S TN.Com . The tru stown ed 1,0 00 sh ares fora $9 .3 m il li on va lu e. The s ha reh ol de r equi ty reflec te d o n STN.Co m ’s 20 06 fin an ci al st at em en t was $3 .8 m il li on .- 21 -

[* 21 ] Adel l’s s ha res of s to ckin : Bi rm in gh am Pro pe rti es , with arep orte d d at e-o fde ath v al ue of $ 96 0,1 66 ; Ad el l Br oa dc as ti ng , with arep orte d d at e-o f-d eath v al ue of $6 mil li on ; an d S TN.Com , with arep orte d d at e-o f-d eath v al ue of $ 9.3 m il li on . The STN.Com

st oc k’s re po rte d v al ue was b as edon a va lu at io n re po rt p rep aredby St ou t Ri si us Ro ss , Inc . (Sto utRis iu s R os s) , andcert ifi edby Jeffre y M. Ri si us , on e of th e es ta te ’s exp ertwitne ss es . 3 1 The est at e am en de d i ts est at e ta x re tu rntwi ce. The est at e’s Fo rm 70 6 was
am en de d fo r th e fi rs t t im e o n No ve m be r 17 , 20 08 , ov er a year aft er the fil in g o f it s or ig in al return. Onth e fi rs t am en de d re tu rn , th e $ 6.6 m il li on pa y m en t M r. Ade ll
m ad e o n b eh al f of

Kevi n t o d is ch arg e a jud gm en t i n 2 00 6 was rech arac te riz edby th e es ta te fro m

a no te pa y ab le to Mr. Ad el l o r a l oa n re cei vabl e to th e es ta te to a ta xabl e g iftfro m

Mr. Ad el l t o Kev in . By

rech arac te riz in g t he rece iv ab le as agi ft, th e es ta te reduc edit s t ot al tra ns fer t ax es fro m $1 5,2 88 ,51 7, as ori gi na ll y rep orte d,

Fo r a d is cu ss io n o f Mr. Ri si us ’ va lu at io n re po rt a tt ach edto th e es ta te ’s 3 1 or ig in al Fo rm

70 6, s ee i nf

ra p p. 2 3- 29
.- 22 -

[* 22 ] to $1 2,3 93 ,88 9. The fi rs t am en de d e st at e return d idno t ad jus t the 3 2 STN.Co m

st oc ks ’s dat e-o f-d eath v al ue fro m th e o rig in al ly repo rte d $ 9.3 m il li on . Res po nd en t re cei ve d the est at e’s se co ndam en de d F orm 70 6 o n Au gu st10 , 20 10 , alm os t fo ury ears aft er Mr . Adel l d ie d. Onth e se co ndam en de d re tu rn , th e es ta te ch an ge d i ts ori gi na l re turnpo si ti on an d re po rte d t ha t the STN.Com st oc ks ’s da te -o f-d eath v al ue was z ero in st eadof $ 9.3 mil li on . The es tate ’s to ta l tran sf er ta xe s wer e reduc edto $8 ,11 5,8 89 , andth e v al ue att rib ut ab le to th e cl os el y he ld bu si ne ss ass et s was reduc edfro m $1 6,2 63 ,16 6 t o $ 6,9 60 ,16 6. On No ve m

be r 9, 2 01 0, re sp on de ntis su eda no ti ce o f de fic ie nc y to th e es tate in whi chres po nd en t d et erm in edanest at e ta x d efi ci en cy of $ 39 ,67 3,0 96 . In the
no ti ce, res po nd en t d et erm in ed , in te r al ia , th atth e d at e-o f-d eath v al ue of t he STN.Co m

st oc k tha t M r. Ade ll ha d t ran sf erre d t o t he Adel l Tru stwas o ve r $9 2.2
m il li on , in st eadof $ 9.3 m il li on rep orte d o n t he ori gi na l Fo rm 70 6 fi le d o n

The fi rs t am en de d e st at e ta x re tu rnreque st edth atth e p rev io us ly rem it te d 3 2 es ta te tax pa ym en t o f $8 ,09 4,5 57 , pai d i n No ve m be r 20 07 , be r eal lo cat edto ap pl y $5 ,20 5,4 49 to th e am en de d re tu rnba lanc e o f $1 2,3 93 ,88 9. Th e fi rs t am en de d return a ls o i nd ic at edth atth e rem ai ni ng $2 ,88 9,1 08 of t he $8 ,09 4,5 57 pa ym en t m ad e wit h the ori gi na l re tu rnsh ou ldbe ap pl ie d t o M r. Ade ll ’s tax ab le gi fts . The Co urt p rev io us ly deci de d tha t b ecau se th ere was no t an av ai labl e o ve rp aym en t o f es ta te tax , th e $ 2,8 89 ,10 8 p rev io us ly rem it te d a s es ta te tax co ul d n otbe ap pl ie d t o th e g ifttax li ab il ity . See Est at e o f Ade ll v. Co m mis si on er, T.C. Mem o. 2 01 4- 89 ; se e al so supr a n ot es 23 an d 2 9.- 23 -

[* 23 ] Nov em

be r 13 , 20 07
. Kevi n, as th e es ta te ’s rep res en ta ti ve , ti m el y fil eda 3 3 pe ti ti on with the Co urt. IV. Valu at io n R ep orts A. Mr. Ris iu s’ Ju ne 15 , 20 07 , Valu at io n R ep ort Mr. Ri si us was p rimaril y res po ns ib le forpre pa rin g t he fir stva lu at io n re po rt of th e STN.Co m

st oc k tha t was att ach edto th e es ta te ’s ori gi na l re tu rn . In pr ep ari ng th e rep ort, Mr . Ris iu s co ns id eredth e fac to rs li st edinRev . Rul . 59 -6 0, 19 59 -1 C.B. 2 37 . He reli edon STN.Com ’s fin an ci al st at em en ts forth e TYE June 30 , 20 02 th ro ug h 2 00 6, the servi ces ag reem en t b etweenThe Wordan d S TN.Com , The W or d’s b y laws, an d asch edul e o f co m pe ns at io n p ai d t o S TN.Com ’s off ic ers fo r th e TYE June 30 , 20 02 th ro ug h 2 00 6. Mr . Ris iu s al so sp ok e wit h S TN.Com ’s
m an ag em en t re ga rd in g i ts bu si ne ss , in du stry , hi st ory , andpro sp ect s.

The no ti ce o f de fic ie nc y

di d n otrefe ren ce the est at e’s se co ndam en de d 3 3 return i n wh ic h i t re po rte d azero va lu e fo r th e STN.Co m st oc k a nditdo es no t ap pe ar fro m

th e rec or d tha t the sec on d a m en de d F orm 70 6 was acce pt ed , alt ho ug h itdo es refl ectth e es tate ’s ori gi na l p os it io n t ak enon th e p et it io n. Th e n ot ic e o f de fic ie nc y , ho wev er, i nc lu de d a$2 ,96 0,6 57 gro ss -up t o t he est at e to acco un t fo r th e ad di ti on al gi ft t ax pa y ab le with re sp ectto Mr. Ad el l’s co rrec te d t ax ab le gi fts fo r 20 06 refl ect edon th e fi rs t am en de d re turn . The es tate rece iv eda se parat e no ti ce o f de fic ie nc y

forth e d el in qu en t g ifttax return a ndsubs eque ntgi ft t ax li ab il ity accr ue d a s a r es ul t o f th e rec ha ract eri zat io n. Th e es ta te ’s gi ft t ax pe ti ti on is th e subjec t o f Est at e o f Ade ll v. Co m m is si on er, T.C. Mem o. 2 01 4- 89
.- 24 -

[* 24 ] Usi ng th is in fo rm at io n, M r. Ri si us de sc rib edSTN.Com as aco m pany tha t ge ne rat es rev enue by upl in ki ng ne two rktel ev is io n b ro ad cas ti ng for it s s ol e cu st om er, The W or d, p ur su an t t o aservi ces an d fa ci li ti es ag reem en t. Mr . Ris iu s rep orte d tha t STN.Co m

rece iv ed95 % of t he rev enue ge ne rat edby T he W or d a s co ns id erat io n. Altho ug h M r. Ri si us ackno wled ge d t ha t STN.Co m ’s si ng le

3 4
co nt ractwith i ts si ng le cu st om er p os edsi gn ifi can t ri sk s, h e co nc lu de d t ha t the ris k
co ul d b e acc ou nt edfor

by add in g aco m

pa ny ris k a dju st m en t o f 3%. Mr. Ri si us ’ fin an ci al st at em en t an al y si s b eg anwith aba lanc e sh eetan al y si s th atin cl ud edco ns id erat io n o f STN.Co m ’s network in g c ap it al , pro pe rty and equi pm en t, i nt eres t-b eari ng de bt , andst oc kh ol de rs equi ty. Becaus e STN.Co m ’s hi st or ic al work in g c ap it al , whi chin cl ud edacco un ts rece iv ab le an d a cco un ts pa y ab le , dem on st rat edanup wardtre ndex cep t fo r 20 05 , Mr. Ri si us pro jecte d tha t STN.Co m ’s network in g c ap it al (cu rren t as se ts les s cu rren t l iabi li ti es ) was
ex pe ct edto gra du al ly inc reas e fro m ap pr ox im at el y

$1 .2 m il li on to $1 .6 m il li on , rem ai ni ng co ns tantat app ro xi m at el y 6.3 % of s al es . STN.Com ’s ov eral l as se ts , 3 5
As n ot edsupr a p p. 1 1- 13 an d n ot e 1 6, STN.Co m ’s fin an ci al st at em en ts for 3 4 it s TYE 20 02 th ro ug h 2 00 6, an d upo n wh ic h M r. Ri si us rel ie d t o p rep are h is va lu at io n re po rt, a ls o d es cri be d S TN.Com ’s con si de rat io n a s 9 5% o f th e rev enue ge ne rat edby T he W or d. Mr. Ri si us de fin edth e h is to ric al pe rio d a s the fiv e TYE June 30 , 20 02 3 5 (co nt in ue d...)- 25 -

[* 25 ] in cl ud in g g ro ss fix edass et s o f le as eh ol d i m pr ov em en ts , up li nk in g a nd br oa dc as ti ng equi pm en t, o ffi ce fu rn itur e, an d o ne or m or e v eh ic le s, i nc reas edfro m $2 .2 m il li on in20 02 to $5 .6 m il li on in20 05 an d t he n d ecre as edto $4 .9 m il li on as of 20 06
. STN.Com

ha d app ro xi m at el y

$8 54 ,00 0 o f in te res t-b eari ng de btan d 3 6 st oc kh ol de rs equi ty that i nc reas edfro m ap pr ox im at el y

$5 59 ,00 0 t o $ 3.8 m il li on du rin g the hi st or ic al pe rio d. Inhi s i nc om e st at em en t an al y si s, M r. Ri si us no te d t ha t s al es in crea se d rap id ly dur in g the hi st or ic al pe rio d fr om ap pr ox im at el y

$7 .9 m il li on in20 02 to $1 5.9 m il li on in20 06 an d wer e p ro jecte d t o i nc reas e fro m

ap pr ox im at el y

$1 8.5
m il li on to $2 6 m il li on durin g the pro jecti on pe rio d. “ Due to sev eral un us ua l o r no nr ecurri ng expe ns e it em s” , ho wev er, Mr . Ris iu s m ad e a num be r of ad jus tm en ts to STN.Com ’s rep orte d fi na nc ia l re su lt s t o m or e acc ur at el y refl ectSTN.Com ’s

(...co nt in ue d) 3 5 th ro ug h 2 00 6, an d the pro jecti onpe rio d a s the fiv e TYE Aug us t 1 3, 2 00 7 t hr ou gh 20 11 , andth e res idua l p eri oden di ng Aug us t 1 3, 2 01 2. On the ba si s o f hi s co nv ers at io ns with m an ag em en t, Mr . Ris iu s p ro jecte d 3 6 ne t capi ta l ex pe nd itur es to ran ge fro m ap pr ox im at el y

$2 00 ,00 0 t o $ 2 m il li on ov er fiv e y ears . Accor di ng to m an ag em en t, STN.Co m bu dg et edsi gn ifi can t capi ta l ex pe nd itur es inth e fu tu re t o p ur ch as e a t ou r bu s i n 2 00 7 a ndequi pm en t upg rad es in 20 09 . In 2 00 6 o r 20 07 STN.Com pu rch as eda bu s tha t co stab ou t $ 80 0,0 00
.- 26 -

[* 26 ] no rm al iz edon go in g o pe rat in g p erfo rm an ce. Am on g t he ad jus tm en ts was a reduc ti on inoff

ic ers sal ari es an d wag es to refl ectm ark etrat es . 3 7 Mr. Ri si us als o a dju st edSTN.Com ’s op erat in g e xp en se s t o i nc lu de an eco no m ic ch arg e fo r Kev in ’s per so na l g oo dwi ll . Mr. Ri si us ex pl ai ne d t ha t the ad jus tm en t was ap pr op ria te be cau se th e su cces s o f STN.Co m de pe nd edhe av il y

on Kev in ’s per so na l re la ti on sh ip s wi th th e b oa rdof d ire ct or s o f The W or d. Mo reo ve r, Kev in di d n otha ve a no nc om pe te ag reem en t wi th STN.Com , andas a res ul t a p ot en ti al bu y er wo ul d a cqui re STN.Co m on ly to the ex te ntth atth e co m pa ny retai ne d Kev in . The ec on om ic ch arg e fo r Kev in ’s per so na l g oo dwi ll
ran ge d fr om

37 .2% t o 4 3.4 % of s al es ov er the hi st or ic al pe rio d a ndfro m 43 .7% t o 44 .1% o f sa le s o ve r th e p ro jecti on pe rio d. Mr . Ris iu s ad de d t he eco no m ic ch arg e to STN.Com ’s pro

jecte d o pe rat in g e xp en se s, the reb y in crea si ng th e ex pe ns es to

Mr. Ad el l an d Kev in ’s com bi ne d c om

pe ns at io n i nc reas edfro m 3 7 ap pr ox im at el y

$3 .2 m il li on to $8 .6 m il li on . Becau se Mr. Ad el l was th e o wne r of STN.Co m

inad di ti onto be in g an e m pl oyee, andKevi n was hi s s on , Mr. Ri si us ex pl ai ne d tha t o nl y

th e m ark etrat e th atwou ldbe pa idto a th irdpa rty to p erfo rm th ei r du ti es sh ou ldbe co ns id eredas o ffi cers sal ary. As ad jus te d, M r. Ri si us es ti m at edSTN.Com ’s ann ua l b as e m ark etco m pe ns at io n fo r m an ag em en t t o b e $4 80 ,00 0. Be cau se Mr. Ri si us de sc rib edSTN.Com ’s rev enue as 9 5% o f The W or d’s re ve nu e wit ho utbe in g c ap pe d a t STN.Co m ’s cos t o f se rv ic es pro vi de d, Mr. Ri si us di d n otad dr es s wh ethe r any reduc ti on inSTN.Com

co m pe ns at io n wou ldm eana reduc edpro gr amm in g fe e p ai d b y The Word
.- 27 -

[* 27 ] ap pr ox im at el y

$8 mil li on forth e TYE 20 07 to $1 1 m il li on for th e res idua l pe rio d e nd in g i n 2 01 2. STN.Co m ’s othe r op erat in g e xp en se s, wh ic h i nc lu de d p ro gr amm in g ex pe ns es , sat el li te fees , leg al an d p ro fes si on al fees , andot he r admin is tra ti ve ex pe ns es , in crea se d dur in g the hi st or ic al pe rio d fr om ap pr ox im at el y

$2 m il li on to $4 .2 m il li on , inli ne with S TN.Com ’s ov eral l g ro wth . As ad jus te d, STN.Co m ’s
earn in gs be fo re i nt eres t, t ax es , dep reci at io n a ndam orti zat io n g en eral ly inc reas ed
ov er the hi st or ic al pe rio d i n l in e wit h o ve ral l s al es an d was pro jecte d t o re fle ct 12 .1% o f sa le s, o r ap pr ox im at el y $2 .2 m il li on inth e fi rs t year of t he pro jecti on pe rio d t o $ 3.1 mil li on inth e res idua l p eri od
. On the ba si s o f th e fo reg oi ng , Mr. Ri si us de te rm in edth atSTN.Com was an op erat in g e nt ity

th atwas e xp ect edto pro du ce p os it iv e cas hf lo ws i n t he futur e. In 3 8 ot he r wor ds , th e v al ue of S TN.Com as ago in g c on cern ex ceed edth e v al ue of i ts
un de rlyin g a ss et s i n l iqui da ti on . Acco rd in gl y , Mr. Ri si us us eda di sc ou nt ed 3 9 Mr. Ri si us ex pl ai ne d tha t the hi gh es t an d b es t u se of aco m pa ny is ei th er 3 8 as a go in g c on cernor i n l iqui da ti on de pe nd in g o n wh ic h g en erat es th e h ig he r va lu e; an d wi th res pe ctto STN.Com , it s h ig he stan d b es t u se was a s a g oi ng co nc ern . The ass etap pr oa chinva lu in g a n e nt ity m ay be us edinth e v al ua ti onof 3 9 op erat in g c om

pa ni es wher e th e v al ue of t he un de rlyin g a ss et s i n l iqui da ti on --as reduc edto refl ectass oc ia te d t ax li ab il it ie s- -ex ceed s the va lu e o f th e b us in es s as a (co nt in ue d...)- 28 -

[* 28 ] cas hf

lo w ana lysis of t he in co m e ap pr oa chwhen va lu in g the STN.Com st oc k. 4 0 Fi rs t M r. Ri si us cal cu la te d t he to ta l wei gh te d a ve rag e rat e o f return, wh ic h he no te d i s the co m

bi na ti on of t he return o n b ot h d eb t an d e qu ity . The rat e o f return was ba se d o n an a ss um edcap it al stru ctur e o f 30 % de btan d 7 0% e qu ity . Mr. Ri si us de te rm in edth atth e requi redrat e o f return o n e qu ity was 2 6.9 %, whi ch in cl ud es a co m

pa ny ris k a dju st m en t o f 3% t o a cco un t fo r th e ri skass oc ia te d wi th lo si ng STN.Com ’s on ly cus to m er, The W or d. He the n c al cu la te d t ha t the
es ti m at edaft er-t ax requi redrat e o f return o n d eb t was 4.4 % by adjus ti ng a kn own pr et ax return o n d eb t ra te of 6 .7% t o re fle ctaneffe ct iv e Fed eral in co m e ta x ra te of 34 %. Mr. Ris iu s ca lc ul at edth e to ta l wei gh te d a ve rag e rat e o f return- -aro un d

(...co nt in ue d) 3 9 go in g c on cern . See Est at e o f Sm ith v . Comm is si on er, T.C. Mem o. 1 99 9- 36 8. In hi s fi rs t v al ua ti on rep ort, Mr . Ris iu s d et erm in edth atth e in co m e ap pr oa ch , as op po se d t o the ass etap pr oa ch , was ap pr op ria te to va lu e th e STN.Co m st oc k. The di sc ou nt edcas hf

lo w m etho d i s o ne va lu at io n m etho d u nd er the 4 0 in co m e ap pr oa ch , whi chva lu es a co m pa ny onth e b as is of i ts earn in g c ap aci ty. Est at e o f Tru e v . Comm is si on er, T.C. Mem o. 2 00 1- 16 7, af f’d, 39 0 F .3d12 10 (1 0t h C ir. 2 00 4) . The es ti m at edva lu e o f a co m pa ny is b as edon th e p res en t v al ue of it s ex pe ct edfutur e eco no m ic be ne fit s, i .e., it s d is tri bu tabl e cas hf lo w. The m etho d e va lu at es a co m

pany’ s ea rn in gs an d d iv id en d- pa y in g c ap aci ty avai labl e to in ve st or s an d m ay

co ns id er re in ve st m en t re qu ire d fo r th e co m pa ny’ s g ro wth
.- 29 -

[* 29 ] 20 %--b y

su m m in g the pro du ct s o f eac h p orti on of the cap it al stru ctur e wit h it s re sp ect iv e rat e o f return. 4 1 Mr. Ri si us ap pl ie d the rou nd ed20 % rat e o f return t o astream of a nn ua l n et
cas h p ro jecte d fo r STN.Co m

to cal cu la te anen te rp ris e v al ue of $ 7.7 m il li on . The
en te rp ris e v al ue in cl ud es th e p res en t v al ue of S TN.Com ’s res idua l ca sh flo w, $4 ,28 4,8 00 , pl us th e p res en t v al ue of i ts cas hf lo ws fo r th e p ro

jecti onpe rio d, $3 ,43 4,0 00 . After m ak in g a dju st m en ts to th e en te rp ris e v al ue to acco un t fo r STN.Co m ’s cas h a ndcas h e qu iv al en ts , in te res t-b eari ng de bt , andno no pe rat in g as se ts , Mr. Ri si us co nc lu de d tha t the fai r m ark etva lu e o f th e STN.Co m st oc k o n Mr. Ad el l’s d at e o f de ath was ap pr ox im at el y $9 .3 m il li on . This va lu at io n was in cl ud edinth e o rig in al est at e ta x re tu rnfil edinNov em be r 20 07
. B. Mr. Ri si us ’ Octo be r 29 , 20 12 , Valu at io n R ep ort Mo re tha n fi ve y ears aft er h is fir stva lu at io n re po rt, M r. Ri si us , onbe ha lf o f St ou t Ri si us Ro ss , pre pareda se co ndva lu at io n re po rt f orth e STN.Co m

st oc k whi chth e es ta te subm itte d a t tria l. Inth e se co ndva lu at io n re po rt, M r. Ri si us va lu edth e STN.Co m

st oc k u si ng th e ad

jus te d b oo k v al ue m etho d re fle ct in g li qu id at io n o r sa le of a ss et s i ns te adof adi sc ou nt edcas hf lo w m etho d. He

4 1- 30 -

[* 30 ] de te rm in edth atth e fai r m ark etva lu e o n M r. Ade ll ’s dat e o f de ath was $4 .3
m il li on . Mr. Ri si us ’ va lu at io n o f th e STN.Co m st oc k d ecre as edpri m ari ly becau se he
us edth e as se t ap pr oa chin st eadof t he in co m e ap pr oa ch . Mr. Ri si us ch an ge d h is
va lu at io n app ro ach be cau se of ane w un de rs tand in g o f th e se rv ic es ag reem en t. In hi s fi rs t v al ua ti on rep ort, Mr . Ris iu s d idno t ac co un t fo r th e li m it at io n i m po se d o n STN.Co m ’s pro gr amm in g fe e to th e le ss er o f it s co stor 9 5% o f The W or d’s
rev enue wher eas inhi s s eco ndva lu at io n re po rt h e acc ou nt edforth e li m it at io n. Mr. Ri si us tes ti fie d tha t h e rea li zedhi s m is ta ke when tes ti fy in g fo r a h eari ng du rin g the Oakl an d C ounty pro ba te li ti ga ti on in20 09
. On the ba si s o f hi s n ew un de rs tand in g o f th e se rv ic es ag reem en t, Mr . Ris iu s ex pl ai ne d tha t the in co m e ap pr oa ch , whi chrequi res po si ti ve cas hf lo w to be
av ai labl e fo r di st rib ut io n t o s ha reh ol de rs , was n otap pr op ria te forva lu in g t he STN.Co m

st oc k b ecau se th e se rv ic es ag reem en t d idno t al lo w STN.Com to ge ne rat e a p ro fit
. Acco rd in g t o M r. Ri si us : “ Altho ug h S TN has ge ne rat ed 4 2 Inm ak in g h is de te rm in at io n, M r. Ri si us rel ie d i n p artonanex pe rt o pi ni on 4 2 pr ep aredby K enne th Kol m in reg ard in g t he term s o f th e se rv ic es ag reem en t. On Nov em be r 6, 2 01 2, re sp on de ntfil eda m ot io n i n l im in e to ex cl ud e Mr. Ko lm in ’s ex pe rt r ep ort fr om

ev id en ce an d t o e xc lu de an y po rti on of t he ot he r ex pe rt r ep orts th atrel ie d o n M r. Kol min ’s rep ort. Inanord er d at edDecem be r 6, 2 01 2, the Co urt gr an te d re sp on de nt ’s m ot io n t o the ex te ntth atitso ug htto ex cl ud e Mr. Ko lm in ’s (co nt in ue d...)- 31 -

[* 31 ] pr of

it s i n the hi st or ic al pe rio d ahypo th et ic al bu y er o f a co m pa ny woul d n ot pl ace a ny weig hton th e h is to ric al pe rfo rm an ce o f th e co m pa ny giv enth e te rm s o f th e ag reem en t wi th * * * [Th e Word ]. ” Und er the ass etap pr oa chMr. Ri si us acco un te d fo r STN.Co m ’s lac k o f ab il ity to ge ne rat e a p ro fitfro m it s s ol e cu st om er an d t he factth atSTN.Com di d
no t h av e an y

othe r so ur ce o f rev enue or o th er cu st om ers fro m whi chSTN.Com
co ul d g en erat e in co m e. Acco rd in gl y , Mr. Ri si us va lu edth e STN.Co m st oc k u si ng th e ad jus te d b oo k v al ue m etho d o f th e as se t ap pr oa ch . Usin g t he ad jus te d b oo k
va lu e, Mr. Ri si us de te rm in edth e STN.Co m st oc k was wort h $ 4.3 m il li on on Mr. Ade ll ’s dat e o f de ath. 4 3

(...co nt in ue d) 4 2 rep ort fr om

ev id en ce, b utitde ni edres po nd en t’s m ot io n wi thres pe ctto th e ex pe rt rep orts th atrel ie s o n, ad op ts , or re fere nc es Mr. Ko lm in ’s rep ort. No twi th st an di ng th e fo reg oi ng , to th e ex te ntMr. Ri si us ’ co nc lu si onth atSTN.Com lac ke d a ny leg al rig htto earn in gs un de r th e se rv ic es ag reem en t i s b as edon Mr. Ko lm in ’s rep ort, h e is inerro r. As d es cri be d i n M r. Ri si us ’ fir stva lu at io n re po rt, STN.Co m hi st or ic al ly earne d apro fitun de r th e te rm s o f th e se rv ic es ag reem en t an d co nt in ue d t o d o s o wel l af te r Mr. Ad el l’s d eath. Mr. Ri si us ’ se co ndva lu at io n re po rt r el ie d o n a n i nd ep en de ntva lu at io n 4 3 rep ort b y Accu va l As so ci at es , Inc . (Accu va l As so ci at es ), da te d Oct ob er 1 2, 2 01 2, fo r hi s es ti m at io n o f th e Fai r Marke t Val ue -In st al le d o f STN.Co m ’s tan gi bl e pe rs on al pro pe rty ass et s as of Au gu st13 , 20 06 . The Accu va l As so ci at es rep ort us edth e te rm

“ Fai r Marke t Val ue -In st al le d”
.- 32 -

[* 32 ] C. Alex W . Howard ’s Octo be r 29 , 20 12 , Valu at io n R ep ort The est at e’s se co ndex pe rt wi tn es s, M r. Howar d, u se d t he ne t as se t v al ue
m etho d o f th e as se t ap pr oa chto va lu e th e STN.Co m st oc k a ndco nc lu de d t ha t i ts fai r m ark etva lu e o n M r. Ade ll ’s dat e o f de ath was $4 .3 m il li on . Lik e Mr. Ri si us , 4 4 Mr. Ho wardwas a ls o a n e m pl oyee of Sto utRis iu s R os s wh enhe pre pa redhi s va lu at io n re po rt, b uthe di d n otworkon hi s re po rt wi th Mr. Ri si us . Inhi s v al ua ti onan al y si s, M r. Howar d c on cl ud edth atth e in co m e ap pr oa ch
was no t ap pr op ria te inde te rm in in g t he STN.Com st oc k’s fa ir m ark etva lu e “ du e to th e la ckof e arn in gs th atco ul d b e g en erat edby * * * [STN.Co m ] un de r th e pr ov is io ns of t he * * * [s erv ic es ag reem en t].” Whi le Mr. Ho wardackno wled ge d th atSTN.Com

ge ne rat edne t i nc om e h is to ric al ly, he de te rm in edth ata hypo th et ic al bu y er wo ul d n otreas on ab ly exp ectto ge ne rat e p ro fit s b ecau se un de r th e se rv ic es ag reem en t, STN.Co m

“ sh ou ldhave be enon ly reim bu rs edforco st s i nc urred , effe ct iv el y

m ak in g i t a z ero pro fitsi tu at io n.” Ano th er re as onMr. Ho wardde te rm in edth atth e in co m e ap pr oa chwas in ap pr op ria te was tha t STN.Co m ’s exe cu ti ve co m pe ns at io n m od el res tri ct edth e
Unl ik e Mr. Ri si us , Mr. Howarddi d n otrel y on Mr. Ko lm in ’s exp ertrep ort 4 4 an d t es ti fie d tha t h e d idno t kno w itex is te d. Al th ou gh anem pl oyee of Sto ut Ri si us Ro ss when he pre pa redhi s re po rt, M r. Howar d h adlef t St ou t Ri si us Ro ss an d h adhi s o wn fi rm

when he tes ti fie d.- 33 -

[* 33 ] co m

pany’ s ea rn in g p ot en ti al . Mr. Howar d e xp la in edth atan al y st s an d bu y ers typic al ly adjus t h is to ric al an d p ro jecte d c as hf

lo ws t o a cco un t fo r hi gh
sa larie s p ai d t o e xe cu ti ve s wh ende te rm in in g t he fai r m ark etva lu e o f a co nt ro ll in g in te res t i n aco m

pa ny. He ci te d t he pro vi si on of t he servi ces ag reem en t tha t de fin edrei m

bu rs ab le co st s t o i nc lu de a “reas on ab le all oc at io n o f sa larie s, wag es , em pl oyee be ne fit s, an d the em pl oyer’s sh are o f pa yro ll tax es of a ll em pl oyees em pl oyed b y STN inpro vi di ng servi ces un de r th e Agr eem en t” . Accor di ng to th e te rm s o f th e se rv ic es ag reem en t, h owe ve r, “ an y reduc ti on insal ari es wou ldres ul t in a do ll ar fo r do ll ar re du ct io n i n re ve nu e fo r * * * [S TN.Com ], pre ve nt in g a hypo th et ic al pu rch as er o f th e Sh ares fro m ge ne rat in g p ro fit s b y

reduc in g s al ari es to m ark etlev el s.” Fu rth er, Mr . Howardde te rm in edth atanun rel at edpa rty woul d fin d S TN.Com ’s exe cu ti ve co m pe ns at io n unr eas on ab le , pre ve nt in g ahypo th et ic al pu rch as er fro m

in crea si ng earn in gs by inc reas in g e xe cu ti ve co m pe ns at io n. Acco rd in gl y , Mr. Howa rdfou ndth e in co m e m etho d was in ap pr op ria te be cau se th e se rv ic es ag reem en t wo ul d re st ric t a h y po th et ic al bu y er fro m

in crea si ng pro fit s b y cu tt in g e xe cu ti ve co m

pe ns at io n, an d t he hypo th et ic al bu y er co ul d n otin crea se pr of it s b y gi vi ng hi m se lf ahi gh sal ary be cau se STN.Com ’s alr eady un reas on ab le
ex ecu ti ve co m

pe ns at io n wo ul d n otbe ap pr ov edby a thi rdpa rty.- 34 -

[* 34 ] In a dd it io n t o l ack in g aco nt ractua l g ua ran ty of a s pe ci fic return, M r. Howar d n ot edth atSTN.Com ’s pro jecte d c as hf

lo w stream s fr om

it s o nl y cu st om er, The W or d, wer e unc ert ai n b ecau se Kevi n d idno t h av e a n on co m pe te ag reem en t with S TN.Com

an d c ou ldcreate a ne w com pa ny to re pl ace S TN.Com . He
ex pl ai ne d tha t the go od wil l as so ci at edwith t he rel at io ns hi p b etweenKevi n a nd The W or d was pe rs on al to Kevi n. With ou t an em pl oym en t ag reem en t wi thKevi n, Mr. Ho wardco nc lu de d tha t anin co m e ap pr oa chwas n otap pr op ria te to de te rm in e th e fai r m ark etva lu e o f th e STN.Co m st oc k. Mr. Ho wardde te rm in edth atth e n etass etva lu e m etho d was th e ap pr op ria te
va lu at io n m etho d b ecau se STN.Com ha d a ss et s wi th va lu es th atco ul d b e de te rm in ed
. Usi ng th is va lu at io n m etho d, M r. Howar d d et erm in edth aton Mr.

4 5 Ade ll ’s dat e o f de ath, the fai r m ark etva lu e o f 10 0% o f th e STN.Co m st oc k was $4 .3 m il li on . D. Fran ci s X. Bu rn s’ Octo be r 31 , 20 12 , Valu at io n R ep ort Res po nd en t’s ex pe rt wi tn es s, M r. Burn s, v al ue d t he STN.Com st oc k u si ng th e d is co un te d c as hf

lo w m etho d o f th e in co m e ap pr oa chan d d et erm in edth atth e

Mr. Ho ward ’s val ua ti on rep ort re li edon th e in de pe nd en t v al ua ti on rep ort 4 5 of Accu va l As so ci at es da te d Oct ob er 1 2, 2 01 2, fo r hi s v al ua ti on of t he fai r m ark et va lu e o f STN.Co m ’s fix edass et s.- 35 -

[* 35 ] va lu e o n M r. Ade ll ’s dat e o f de ath was $2 6,3 41 ,03 0. In h is va lu at io n h e 4 6
rev ie wedSTN.Com ’s bu si ne ss op erat io ns , own ers hi p s tru ctur e, an d fi na nc ia l pe rfo rm an ce b etweenTYE 200 2 a nd20 06 . He als o re vi ewedth e se rv ic es ag reem en t an d, l ik e Mr. Ri si us an d M r. Howar d, n ot edth atth e m on th ly pro gr am fee p ay ab le fro m

The Word , STN.Com ’s on ly cus to m er, t o S TN.Com was l im it ed to “ th e le ss er o f actua l co stor * * * [95 %] of n etpro gr ammin g re ve nu e rec ei ve d by * * * [The W or d] ina on e m on th pe rio d.” On the ba si s o f hi s an al y si s o f th e fo reg oi ng , Mr. Bu rn s d et erm in edth atth e ap pr op ria te va lu at io n m etho d fo r th e STN.Co m st oc k o n M r. Ade ll ’s dat e o f de ath in 20 06 was the di sc ou nt edcas hf lo w m etho d o f th e in co m e ap pr oa ch . In s up po rt of hi s co nc lu si on , Mr. Bu rn s ex pl ai ne d t ha t STN.Co m was afai rly y ou ng co m

pa ny as of t he va lu at io n d at e th atha d b eenpro fit ab le ineachof t he fis cal y ears pr eced in g the va lu at io n d at e. As a s ou rce f orhi s p ro jecte d c as hf

lo w ass um

pt io ns , Mr. Bu rn s u se d the m an ag em en t d is cu ss io ns cit edinMr. Ri si us ’ fir stva lu at io n rep ort. Mr. Bu rn s ad op te d M r. Ri si us ’ pr ojec te d s al es forSTN.Com forth e fi ve y ears pl us a res idua l p eri odaft er the va lu at io n d at e whi chran ge d fr om By co nt ras t, re sp on de nt ’s val ua ti on inth e n ot ic e o f de fic ie nc y was g reat er 4 6 th an$9 2 m il li on .- 36 -

[* 36 ] ap pr ox im at el y

$1 8.5 m il li on to $2 6 m il li on durin g t he pro jecti on pe rio d. Mr. Bu rn s n ot edth atth e sa le s p ro jecti on s as su m edth atThe Wordwou ldco nt in ue it s p ract ic e o f pay in g S TN.Com acco rd in g t o i ts rev enue s ra th er tha n S TN.Com ’s actua l co st s. He al so ad

jus te d o ffi cers co m

pe ns at io n t o m ark etrat es , exp la in in g th ata hypo th et ic al in ve st orwou ldm ax im iz e STN.Co m ’s cas hf lo w by pa y in g co m pe ns at io n a t m ark etrat es . Mr. Bu rn s d idno t, h owe ve r, ad dr es s wh ethe r hi s ad jus tm en t t o o ffi cers co m

pe ns at io n wo ul d re du ce STN.Co m ’s pro gr am fee pu rs ua ntto th e te rm s o f th e se rv ic es ag reem en t. Mr. Bu rn s al so ad dr es se d t he im po rta nc e o f Kev in ’s rel at io ns hi p wi th The W or d t o S TN.Com ’s con ti nu edbu si ne ss op erat io ns . Ins te adof app lying an eco no m ic ch arg e fo r Kev in ’s per so na l g oo dwi ll si m il ar t o the on e fo un d i n M r. Ri si us ’ fir stva lu at io n re po rt, M r. Burn s co nc lu de d t ha t a h y po th et ic al in ve st or wou ldan ti ci pa te ret ai ni ng Kevi n a s an off ic er o f STN.Co m

an d wo ul d n eedto
co m pe ns at e Kev in at a n a ccep tabl e rat e o f 8.1 % of s al es . Mr. Bu rn s n ot edth athi s as su m edco m

pe ns at io n l ev el forKevi n o f ne arl y $1 .3 m il li on in20 06 was si gn ifi can tl y

hi gh er tha n M r. Ri si us ’ es ti m at e o f $5 28 ,00 0 i n h is fir stva lu at io n rep ort. On the ba si s o f STN.Co m ’s exi st in g l ev el of i nt eres t-b eari ng de btan d
es ti m at es of i ts equi ty val ue , Mr. Bu rn s as su m eda cap it al stru ctur e o f 5% d eb t an d- 37 -

[* 37 ] 95 % equi ty andcal cu la te d aweig ht edav erag e co stof c ap it al (ordi sc ou nt rat e) o f 25 .5%. Mr . Burns ’ di sc ou ntrat e was hi gh er than t he 20 % us edby Mr. Ri si us an d, ac co rd in g t o M r. Burn s, l edto a lo wer v al ua ti on of t he STN.Com st oc k. Ho wev er, Mr . Burns ap pl ie d t he 25 .5% d is co un t ra te to a stream of a nn ua l
ne t ca sh flo w th atwas s ub st an ti al ly hig he r th anth e n etcas hf lo w cal cu la te d b y

Mr. Ri si us inhi s fi rs t re po rt. M r. Ri si us ’ cal cu la ti on of d is tri bu tabl e cas h was
subs tant ia ll y

lo wer tha n tha t ca lc ul at edby Mr. Burns pri m ari ly becau se Mr. Ri si us reduc edSTN.Com ’s pro

jecte d s al es , whi chwere the same nu m be rs us edby Mr. Bu rn s, b y th e eco no m ic ch arg e fo r Kev in ’s per so na l g oo dwi ll . The res ul t was a ne t p res en t v al ue of t ot al in ve st edcap it al of $ 30 ,68 9,5 59 , whi chwas m uc h h ig he r th anMr. Ri si us ’ en te rp ris e v al ue of app ro xi m at el y $7 ,70 0,0 00
. Afte r m ak in g a dju st m en ts to th e v al ue of t ot al in ve st edcap it al to acco un t fo r STN.Co m ’s cas h a ndcas h e qu iv al en ts , in te res t-b eari ng de bt , andno no pe rat in g as se ts , Mr. Bu rn s ap pl ie d a20 % di sc ou ntforlac k o f m ark et ab il ity an d c on cl ud ed th atth e fai r m ark etva lu e o f th e STN.Co m st oc k o n M r. Ade ll ’s dat e o f de ath was $2 6,3 41 ,03 0. OPINION The Co urt i s as ke d t o d et erm in e th e fai r m ark etva lu e o f Mr. Ad el l’s 1 00 % in te res t i n S TN.Com

on hi s d at e o f de ath andwhet he r th e es tate is li ab le forth e- 38 -

[* 38 ] subs tant ia l es ta te tax va lu at io n u nd ers ta te m en t p en al ty w ith re sp ectto th e STN.Co m

st oc k. Th e p art ie s h av e b ot h s ub st an ti al ly chan ge d t he ir p os it io ns refl ect edinth e n ot ic e o f de fic ie nc y , th e o rig in al pe ti ti on , andth e an swe r to th e Co urt. The est at e n ow ar gu es th atth e fai r m ark etva lu e o f th e STN.Co m st oc k i t he ldon th e v al ua ti on da te was $ 4.3 m il li on . Res po nd en t n ow as se rts th atth e fai r
m ark etva lu e o f th e st oc k was $2 6,3 41 ,03 0. I. Burd enof P ro of Dur in g the tri al th e es ta te fil eda m ot io n t o s hi ft t he bu rd enof p ro of to
res po nd en t und er s ect io n 7 49 1( a). Inanord er en te redon Decem be r 6, 2 01 2, the Co urt fo un d tha t the est at e’s subs tant ia ll y in co ns is te ntpo si ti on s re ga rd in g t he
va lu at io n o f th e STN.Co m st oc k d em on st rat eda fai lure t o m eetth e requi rem en ts of sec ti on 74 91 (a)( 2) an d the refo re the bu rd enof p ro of rem ai ne d wi th th e es ta te . 4 7 The Co urt n ot edth atno twi th st an di ng it s d ecl in in g t o s hi ft t he bu rd enof p ro of to
res po nd en t the cas e wil l u lt im at el y be de ci de d o n t he pre po nd eran ce o f th e ev id en ce. Init s p os ttria l b rie f th e es ta te ag ai n arg ue s tha t the burd enof p ro of sh ou ldsh iftto res po nd en t wi th res pe ctto th e v al ua ti on of t he STN.Com st oc k. The est at e as se rte d the STN.Com st oc k was wort h $ 9.3 m il li on onit s 4 7 or ig in al est at e ta x re turnan d o n i ts sec on d a m en de d e st at e ta x re tu rn . On th e or ig in al pe ti ti on fil edwith the Co urt the est at e as se rte d t he STN.Com st oc k h ad zero va lu e. The e st at e’s po si ti onat t ria l was th atSTN.Com st oc k s ho ul d b e va lu edat $ 4.3 m il li on .- 39 -

[* 39 ] Afte r rev ie w of the est at e’s po st tri al bri ef, the Co urt s us ta in s the ord er de nyin g the m ot io n t o s hi ft t he bu rd enof p ro of
. 4 8 Inge ne ral , th e Co m

m is si on er’s d et erm in at io ns inth e n ot ic e o f de fic ie nc y are p res um edco rrec t, an d the tax pa y er h as th e b ur de n o f pr ov in g t ha t the Co m m is si on er’s d et erm in at io ns are i nc orrect . See Ru le 14 2( a); W el chv. Helv eri ng , 29 0 U.S. 1 11 , 11 5 (1 93 3) . Sect io n 7 49 1( a) al lo ws a t axpa y er t o s hi ft th e b ur de n o f pr oo f to th e Co m m is si on er wi th res pe ctto a factua l i ss ue if the ta xp ay er i nt ro du ces cred ib le ev id en ce re ga rd in g t ha t i ss ue rel ev an t t o a sc ert ai ni ng th e ta xp ay er’s l iabi li ty for a t ax (un de r subt it le A or B) . “ ‘Credi bl e ev id en ce i s * * * ev id en ce wh ic h, af

te r cri ti cal an al y si s, the co urt wo ul d fi ndsu ffi ci en t * * * to ba se a de ci si ononth e is su e’” inth e ta xp ay er’s fav or , abs en t an y co nt rary ev id en ce. Hig be e v . Comm is si on er, 1 16 T.C. 43 8, 4 42 (20 01 ) (quo ti ng H. R. Co nf . Rep t. No . 10 5- 59 9, at24 0- 24 1, 1 99 8- 3 C .B. 74 7, 9 94 -9 95 ). The est at e d idno t p res en t ev id en ce wh ic h, af te r cri ti cal an al y si s, the Co urt
wou ldfin d s uf

fic ie ntto ba se a de ci si on on th e is su e o n b ecau se th e ev id en ce was in co ns is te nt . See i d. In co ns is te ntev id en ce i s n otcred ib le an d i s n otpe rs ua si ve to sh iftth e b ur de n u nd er s ect io n 7 49 1. Se e Gut ie rrez v. Co m m is si on er, T.C. Mem o. The pa rti es bri efeda nu m be r of ev id en ti ary ob

jecti on s tha t the Co urt h ad 4 8 res erv edrul in g o n a t tria l. Tho se ob jecti on s n otde al t wi th inth is op in io n h av e be ende al t wi th by ord er d at edAug us t 4 , 20 14
.- 40 -

[* 40 ] 20 03 -3 21 . The es ta te pre se nt edco nf li ct in g e xp ertrep orts an d t hr ee d iff eren t
va lu es of t he STN.Com

st oc k. Th e th ree d iff

eren t p os it io ns tak enhi gh li gh t the la ckof c red ib le ev id en ce n eces sa ry to sh iftth e b ur de n. In st eadof o ne po si ti on on whi chth e Co urt co ul d b as e a d eci si on acco rd in g t o t he st an da rdinHig be e, th e es ta te pre se nt edth ree d iff eren t v ie ws tha t m ay

each ha ve so m e m eri t. Acco rd in gl y , th e in co ns is te ntev id en ce p res en te d i s n otcred ib le un de r se ct io n 74 91 an d the burd enrem ai ns with t he est at e. Furth er, the pa rti es ha ve st ip ul at edth e o pe rat iv e fac ts an d d oc um en ts , and sp eci fic al ly the term s o f th e se rv ic es ag reem en t b etweenSTN.Com an d i ts on ly
cu st om er, The W or d. Th e p art ie s d is pu te , ho wev er, the im pa ctof t he servi ces ag reem en t o n the va lu at io n o f th e STN.Co m st oc k a s o f th e d at e o f Mr. Ad el l’s de ath. Inth es e ci rcu m st an ces , th ere i s n o n eedto an al yze o r de ci de whi chparty ha s the bu rd enof p ro of

or wh ethe r th e es ta te m etth e “ cred ib le ev id en ce” requi rem en t. As t he fin de r of fact , th e Co urt co ns id ers th e und erl y in g fa ct s ag reed up on by the pa rti es an d p res en te d a t tria l an d l oo ks to th e ex pe rts ’ rep orts for gu id an ce o n d eci di ng th e v al ua ti on is su e. II. Valu at io n o f th e STN.Co m Sto ck Afte r co nc es si on s b y

th e p art ie s, the rem ai ni ng is su es forde ci si on are the
va lu e o f th e STN.Co m

st oc k i nc lu de d i n t he gro ss est at e an d the rel at edpe na lty .- 41 -

[* 41 ] The va lu e o f pr op erty is a qu es ti on of f

act . Esta te of Ne who us e v . Co m m is si on er, 9 4 T.C. 1 93 , 21 7 (1 99 0) . Duri ng th e tr ia l, the est at e as se rte d t ha t th e v al ue of t he STN.Com st oc k was $4 .3 m il li on , andres po nd en t as se rte d t ha t the
va lu e was $2 6,3 41 ,03 0. A. Fair M ark etValu e The tra ns fer o f th e ta xabl e es ta te on Mr. Ad el l’s d eath i s s ub ject t o e st at e ta x. Se c. 20 01 ; Es ta te of De pu ty v. Comm is si on er, T.C. Mem o. 2 00 3- 17 6. Th e ta xabl e es ta te is th e g ro ss est at e le ss all owabl e d educ ti on s. Sec . 20 51 . The g ro ss es ta te in cl ud es th e v al ue of a ll pro pe rty tha t M r. Ade ll own edon th e d at e o f de ath. Sec. 2 03 1. Gen eral ly, th e v al ue of t he gro ss est at e is th e fai r m ark etva lu e o f th e in cl ud edpro pe rty as o f th e d at e o f de ath. Sec . 20 .20 31 -1 (b ), Est at e Tax Reg s. Fai r m ark etva lu e is th e p ric e atwhi chpro pe rty woul d c hang e h an ds be twee n awil li ng bu y er an d awil li ng sel le r, ne ithe r un de r an y co m pu ls io n t o b uy orsel l an d b oth h av in g kno wled ge of r el ev an t fa ct s. Id . The wi ll in g b uyer an d
se ll er ar e h y

po th et ic al , andva lu at io n d oe s n ottak e in to acco un t the pe rs on al ch arac te ris ti cs of t he actua l b uyer or t he actua l s el le r. Est at e o f Cu rry v. Un it ed St at es , 70 6 F .2d14 24 , 14 28 -1 42 9, 1 43 1 (7 th Cir . 19 83 ); Es ta te of No bl e v . Co m m is si on er, T.C. Mem o. 2 00 5- 2. Th e h y po th et ic al wil li ng bu y er an d s el le r are pr es um edto be de di cat edto ach ie vi ng th e m ax im um eco no m ic adva nt ag e, nam el y- 42 -

[* 42 ] th e m ax im

um pro fitfro m

th e h y po th et ic al sal e. Est at e o f Nob le v. Co m m is si on er, T.C. Mem o. 2 00 5- 2. Th e d et erm in at io n o f fai r m ark etva lu e is a qu es ti on of f

act , andth e tr ie r of

factm us t wei gh all rel ev an t ev id en ce o f va lu e an d dr aw ap pr op ria te in fere nc es . Comm is si on er v . Sco tt is h Am . Inv . Co., 3 23 U.S. 11 9, 1 23 -1 25 (19 44 ); s ee al so Est at e o f Newh ou se v. Co m m is si on er, 9 4 T.C. at 21 7. Whi le li st edpri ces of p ub li cl y tra de d s to ckare u su al ly repre se nt at iv e o f th e fai r m ark etva lu e o f th atst oc k fo r Fed eral tax pu rp os es , sp eci al rul es ap pl y when
va lu in g s to ckof aclo se ly hel d c or po rat io n. Es ta te of No bl e v . Comm is si on er, T.C. Mem o. 2 00 5- 2. Th e fai r m ark etva lu e o f st oc k o f a cl os el y he ldco rp or at io n is be stde te rm in edby con si de rin g a ctua l s al es at a rm ’s len gt h i n t he no rm al co ur se of bu si ne ss withi n areas on ab le ti m e b efo re o r aft er the va lu at io n d at e. Id . If th e va lu e o f th e st oc k c an no t b e d et erm in edby usi ng arm ’s-le ng th sal es , fai r m ark et
va lu e is ge ne ral ly det erm in edby con si de rin g a ll rel ev an t fa ct or s tha t wo ul d a ffec t fai r m ark etva lu e. Id . Thes e fac to rs in cl ud e th e co rp or at io n’s n etwort h, pr os pe ct iv e earni ng po wer, d iv id en d- pa y in g c ap aci ty, an d o th er fa ct or s. Sec
. 20 .20 31 -2 (f), Es ta te Tax R eg s.; Rev . Rul . 59 -6 0, s ec. 4 .01 , 19 59 -1 C.B. at23 8. The se fact or s ca nn otbe ap pl ie d wi th m athe m at ic al pre ci si on , andm us t b e co ns id eredinth e li gh t o f th e p art ic ul ar fac ts of e achcas e. Est at e o f Andrews v.- 43 -

[* 43 ] Co m

m is si on er, 7 9 T.C. 9 38 , 94 0- 94 1 (1 98 2) ; Ko hl er v . Comm is si on er, T.C. Mem o. 2 00 6- 15 2. Inth e ab se nc e o f arm ’s-le ng th sal es , th e fai r m ark etva lu e o f no np ub li cl y tra de d s to ckis ge ne ral ly det erm in edby usi ng th ree app ro ach es --m ark et , in co m e, an d a ss etba se d. Es ta te of No bl e v . Commis si on er, T.C. Mem o. 2 00 5- 2. Th e
m ark etap pr oa chva lu es a co m pa ny’ s n onpubl ic ly trad edst oc k b y co m pa rin g t ha t st oc k t o the same or co m

pa rab le st oc k t ha t h as so ldinarm ’s-le ng th tra ns act io ns in th e sa m e ti m efra m e. Id . The i nc om e ap pr oa chva lu es a co m pa ny’ s n onpubl ic ly tra de d s to ckby con ve rti ng an ti ci pa te d e co no mic be ne fit s i nt o asi ng le pre se nt
am ount . Id. The ass et -b as edap pr oa chva lu es a co m pa ny’ s n onpubl ic ly trad ed st oc k b y lo ok in g t o the co m

pa ny’ s as se ts ne t o f it s l iabi li ti es . Id. B. Exp ertOpi ni on s Bo th pa rti es subm it te d e xp ertrep orts pro vi di ng va lu at io ns of t he est at e’s STN.Co m

st oc k a s o f Mr. Ad el l’s d at e o f de ath. Th e ex pe rt r ep orts us eddi ffer en t
va lu at io n m etho ds res ul ti ng intwo pro po se d v al ua ti on s, $ 4.3 m il li on as p ro po se d by the est at e an d $ 26 ,34 1,0 30 as p ro po se d b y res po nd en t. Whe n c on si de rin g e xp erttes ti m on y , th e Co urt i s n otrequi redto fol lo w th e op in io n o f an y

ex pe rt i f itis co nt rary to the Co urt’s jud gm en t. Est at e o f Dep ut y v. Co m m is si on er, T.C. Mem o. 2 00 3- 17 6 (c it in g Hel ve rin g v . Nat’l Gro cery Co., 30 4- 44 -

[* 44 ] U.S. 28 2, 2 95 (19 38 ), an d S il ve rm anv. Co m m is si on er, 5 38 F.2d92 7, 9 33 (2 d C ir. 1 97 6) , aff’g T.C. Mem o. 1 97 4- 28 5) . The Co urt m ay ad op t o r rejectex pe rt te st im on y inwho le or i n p art . Esta te of Da vi s v . Comm is si on er, 1 10 T.C. 53 0, 53 8 (1 99 8)
. The Co urt i s n otob li ga te d t o p ay any reg ardto anex pe rt o pi ni on th atlac ks cred ib il ity . Esta te of Ha ll v. Co m m is si on er, 9 2 T.C. 3 12 , 33 8 (1 98 9) . The Co urt
m ay fin d e vi de nc e o f va lu at io n p ro vi de d b y on e o f th e p art ie s t o b e m or e cre di bl e th anth atof t he othe r pa rty, rath er than aco m pr om is e b etweenth e two . See Bu ffal o To ol & Die Mfg . Co. v . Comm is si on er, 7 4 T.C. 4 41 , 45 2 (1 98 0)
. C. The Es ta te ’s Exp ertW itne ss es : J effr ey Ris iu s an d Al ex Howar d Befo re the est at e subm it te d M r. Ri si us ’ an d M r. Howar d’s ex pe rt t es ti m on y attri al , itfil edit s o rig in al Fo rm 70 6 o n No ve m

be r 13 , 20 07 , with ava lu at io n rep ort o f th e es ta te ’s STN.Com st oc k t ha t was pre pa redpri m ari ly by Mr. Ri si us on Ju ne 15 , 20 07 , 10 m on th s af te r Mr. Ad el l’s d eath a ndbe fo re the pro ba te li ti ga ti on . Inth e v al ua ti on rep ort M r. Ri si us us edth e d is co un te d c as hf lo w ana lysis of t he in co m e ap pr oa chto de te rm in e th atth e fai r m ark etva lu e o f STN.Co m ’s st oc k was $9 .3 m il li on . On th e b as is of M r. Ri si us ’ va lu at io n the est at e rep orte d t ha t the da te -o f-d eath v al ue of t he STN.Com st oc k was $9 .3 m il li on .- 45 -

[* 45 ] The e st at e n ow as se rts th atth e fai r m ark etva lu e was les s than $ 9.3 m il li on , rel y in g o n M r. Ri si us ’ se co ndva lu at io n re po rt a ndon Mr. Ho ward ’s val ua ti on rep ort, b ot h o f whi chare d at edOcto be r 29 , 20 12 . The ex pe rt r ep orts pre pa redby Mr. Ri si us an d M r. Howar d c am e to th e sa m e co nc lu si on : the ap pr op ria te
va lu at io n m etho d o f th e STN.Co m st oc k o n M r. Ade ll ’s dat e o f de ath was th e as se t ap pr oa chan d u nd er tha t ap pr oa chth e fai r m ark etva lu e o f th e STN.Co m st oc k was $4 .3 m il li on . The rep orte d v al ue on th e es ta te ’s ori gi na l re turn , ho wev er, was anadm is si on by the est at e, an d t he lo wer v al ue of $ 4.3 m il li on can no t b e subs ti tu te d wi th ou t co ge ntpro of th atth e rep orte d v al ue was e rro ne ou s. See Es ta te of Ha ll v. Co m mis si on er, 9 2 T.C. at33 7- 33 8. As p ro of th atth e rep orte d v al ue on th e es ta te ’s ori gi na l re tu rnwas erro ne ou s, the est at e rel ie s o n the term s o f th e se rv ic es ag reem en t. Sp eci fic al ly, th e es ta te cit es th e p ro vi si on inth e se rv ic es ag reem en t tha t l im it s STN.Co m ’s pr og ram m in g fe e to th e le ss er o f it s ac tu al co stor 9 5% o f The W or d’s re ve nu e. The est at e arg ue s tha t thi s p ro vi si on pre ve nt s STN.Co m fro m be in g p ro fit ab le an d th eref or e an y va lu at io n o f STN.Co m

m us t b e b as edon th e li qu id at io n o f it s as se ts , it s h ig he stan d b es t u se . 4 9 Inhi s fi rs t an d s eco ndva lu at io n re po rts , Mr. Ri si us ex pl ai ne d t ha t the 4 9 hi gh es t an d b es t u se of aco m pa ny is o n e ithe r a g oi ng co nc ernor ali qu id at io n (co nt in ue d...)- 46 -

[* 46 ] In h is fir stva lu at io n re po rt, M r. Ri si us di d n otm en ti on th e li m it at io n o n STN.Co m ’s pro gr amm in g fe e. Rathe r, he de sc rib edSTN.Com ’s sal es as 9 5% o f The W or d’s b ro ad cas ti ng rev enue rel y in g o n t he de sc rip ti on refl ect edon STN.Co m ’s Fin an ci al Sta te m en ts forth e y ears rev ie wed . In h is sec on d v al ua ti on rep ort, h owe ve r, Mr. Ri si us rel ie d o n t he li m it at io n t o S TN.Com ’s pro gr amm in g fee u nd er the term s o f th e se rv ic es ag reem en t t o c on cl ud e th atSTN.Com co ul d n ot le ga ll y m ak e a p ro fitif the ag reem en t wi th The Wordwas s tri ct ly con st ru ed
. The refo re, n ot withs tand in g S TN.Com ’s pro fit ab il ity du rin g t he fiv e y ears pr eced in g M r. Ade ll ’s dat e o f de ath, Mr. Ri si us fou ndth atSTN.Com ’s hi gh es t 5 0
va lu e was no t as a go in g c on cernbu t as th e li qu id at io n o f it s as se ts . Mr. Ri si us ’
se co ndva lu at io n re po rt d et erm in edth atth e as se t ap pr oa chto va lu at io n was th eref or e ap pr op ria te .

(...co nt in ue d) 4 9 ba si s d ep en di ng on whi chge ne rat es th e h ig he r va lu e. Mr. Ad el l’s d at e o f de ath was Aug us t 1 3, 2 00 6. STN.Co m ’s tax y ear 5 0 en de d i n J un e an d the fin an ci al st at em en ts refl ect ed$3 .8 m il li on insh areh ol de r equi ty. STN.Com

acco rd in gl y

pa idth e Ade ll Trus t $ 1,1 57 ,97 6, fo r a t ot al co m pe ns at io n p ai d t o M r. Ade ll of $ 7,3 54 ,59 4 t ha t was rep orte d o n t he return fo r th e TYE inJu ne 20 07 . The s am e return s ho ws tha t Kev inrece iv ed$1 ,29 2,7 58 in co m pe ns at io n. InTYE Jun e 2 00 7 and20 08 STN.Com pa idKiv enco m

pe ns at io n of $9 ,73 4,6 43 an d $ 8,2 04 ,06 6, re sp ect iv el y . See s up ra p . 14
.- 47 -

[* 47 ] To the ex te ntth atMr. Ri si us ’ de te rm in at io n t ha t STN.Co m co ul d n ot le ga ll y m ak e a p ro fitrel ie d o n M r. Kol m in ’s exc lu de d e xp ertrep ort re ga rd in g the
sa m e, hi s d et erm in at io n a ndth e co nc lu si on dra wn the reo n, i .e., th atSTN.Com ’s hi gh es t v al ue was the li qu id at io n o f it s as se ts , is m is ta ke n. Ev enif M r. Ri si us di d
no t re ly on M r. Kol m in ’s exc lu de d e xp ertrep ort, wh ic h i s p laus ib le si nc e h e te st ifi edth athe real iz edhi s m is ta ke at apro ba te he ari ng be fo re Mr . Kol min pr ep aredhi s ex pe rt r ep ort, h e in co rrec tl y ass um edth atSTN.Com

was n ota pr of it ab le co m

pa ny. Des pi te th e li m it at io n o f STN.Co m ’s pro gr am m in g fe e, STN.Co m

was a pr of it ab le co m

pa ny onth e d at e o f Mr. Ad el l’s d eath a nditwas re as on ab le to
co nc lu de th atitwou ldco nt in ue to be pro fit ab le th erea fte r. The p ro fit ab il ity of STN.Co m

was s up po rte d b y

fiv e y ears of S TN.Com ’s fin an ci al st at em en ts , 5 1 whi chwere p rep aredby Mr. Lam et i’s ac co un ti ng firm , andby dis cu ss io ns with STN.Co m ’s m an ag em en t dur in g t he y ear a fte r Mr. Ad el l’s d at e o f de ath. Altho ug h Th e Wordco ul d h av e en fo rcedth e li m it at io n o n S TN.Com ’s pr og ram m in g fe e, itdi d n otdo so forth e fi ve y ears pre ced in g M r. Ade ll ’s dat e o f de ath, o r th e fo ury ears th erea fte r. Mo reo ve r, m an ag em en t m ad e n o i nd ic at io n
The same fin an ci al st at em en ts rep orte d t he co nt ractua l arran ge m en t as 5 1 be in g 9 5% o f th e rev enue ge ne rat edby T he W or d. Se e supr a p . 24 an d n ot e 3 4.- 48 -

[* 48 ] th atThe Wordwou lden fo rce t he li m it at io n a ndinfactpre di ct edth atit s sa le s wo ul d i nc reas e, res ul ti ng inex pe ct edcap it al ex pe nd itur es th atwou ld
en ha nc e th e v al ue of S TN.Com su chas the pu rch as e o f an$8 00 ,00 0 t ou r bu s an d
subs tant ia l ex pe nd itur es forad di ti on al bro ad cas ti ng equi pm en t. Ma na ge m en t’s di sc us si on s dur in g the fir sty ear a fte r Mr. Ad el l’s d eath wer e p art ic ul arl y im po rta ntbe cau se m an ag em en t, m ai nl y Kevi n, co nt ro ll edThe Wordan d c ou ld th eref or e g iv e Mr. Ri si us anaccu rat e p ic ture o f STN.Co m ’s hi st or ic al an d pr ojec te d p ro fit ab il ity

as o f th e d at e o f Mr. Ad el l’s d eath. 5 2 Furth erm or e, ev enif Th e Wordde ci de d t o e nf or ce the li m it at io n o n STN.Co m ’s pro gr amm in g, the li m it at io n d idno t n eces sa ril y m eanth atSTN.Com
co ul d n otbe pro fit ab le . The co m pa ny woul d c on ti nu e to co ll ectsal es rev enue fro m it s co nt ractwith Th e Wordan d, wi th it s b ro ad cas ti ng equi pm en t an d
ex pe rti se , cou ldpo te nt ia ll y ex pa ndit s o pe rat io ns to pro vi de up li nk in g s erv ic es for ot he r cu st om ers . In a dd it io n, i f a h y po th et ic al in ve st orpa rti ci pa te d i n 5 3
m an ag em en t as Mr. Ad el l an d Kev in ha d, STN.Co m wou ldno t o nl y

be pro fit ab le The pa rti es do no t ad dr es s, an d t he Co urt wi ll no t d is cu ss , whet he r The 5 2 W or d’s s ec. 5 01 (c)( 3) ex em pt io n was at r is k o f rev oc at io n b ecau se of t he un en fo rcedco ntractua l l im it at io n, o r th e p ot en ti al is su e o f pr iv at e in ur em en t; bo th to pi cs are o ut si de th e sc op e o f th e es ta te ’s no ti ce o f de fic ie nc y . Infact , STN Sate ll it e, STN.Co m ’s pre de ces so r, pr ov id edup li nk in g 5 3 se rv ic es to othe r co m

pa ni es .- 49 -

[* 49 ] bu t wo ul d a ls o b e v al uabl e, as ev id en cedby the co m pe ns at io n p ai d t o
m an ag em en t an d the pro vi si on of o th er b en efi ts su chas l ux ury cars . The b ig ge st ris k t o p ro fit ab il ity

an d S TN.Com ’s val ue was Th e Word ’s abi li ty to ch oo se a di ffer en t upl in k p ro vi de r fo r an y reas on , th ereb y

term in at in g S TN.Com ’s con tra ct with i ts on ly cus to m er. Thi s ri sk , ho wev er, d idno t m ak e STN.Co m unpr of it ab le
an d c ou ldbe acco un te d fo r by app lying a co m pa ny ris k a dju st m en t. 5 4 The Co urt the refo re fi nd s tha t a h y po th et ic al wil li ng sel le r an d a hypo th et ic al wil li ng bu y er co ul d n otig no re the hi st or ic al pe rfo rm an ce o f STN.Co m ’s pro fit s o n M r. Ade ll ’s dat e o f de ath, an d n ot withs tand in g t he pr og ram m in g fe e li mit at io n, STN.Co m was i nd eeda pr of

it ab le co m

pa ny. Thu s, an in co m e ap pr oa chis th e m os t ap pr op ria te m etho d t o d et erm in e th e v al ue of t he STN.Co m

st oc k b ecau se th e b us in es s’ bes t v al ue is as ago in g c on cern . See Sm ith v. Co m m is si on er, T.C. Mem o. 1 99 9- 36 8; Rev . Rul . 59 -6 0, s up ra. Inhi s fi rs t
va lu at io n re po rt, M r. Ri si us co rrec tl y ass um edSTN.Com

was p ro fit ab le an d th eref or e co rrec tl y

ap pl ie d the di sc ou nt edcas hf lo w m etho d o f th e in co m e Mr. Ri si us , forex am

pl e, ap pl ie d aco m

pa ny ris k a dju st m en t o f 3% i n h is 5 4 fir stva lu at io n re po rt. Inad di ti on , Kevi n t es ti fie d t ha t m an y m in is te rs who cu rren tl y pu rch as e p ro gr amm in g h adin qu ire d a s t o p ur ch as in g Th e Word . It i s no t a g reatleap o f fai th to co nc lu de th ey co ul d m erel y

pu rch as e STN.Co m

(an d i ts up li nk in g l ic en se ) an d b ro ad cas t the m se lv es an d s ki p the m id dl em an ’s pr og ram m in g fe es , esp eci al ly sin ce the urb anrel ig io us pro gr am bro ad cas te rs were typic al ly nonpr of

itchur ch es alr eady .- 50 -

[* 50 ] ap pr oa chto va lu e STN.Co m . Accor di ng ly, th e Co urt fi nd s tha t M r. Ri si us ’
se co ndva lu at io n re po rt a ndMr. Ho ward ’s val ua ti on rep ort, b ot h o f whi chus e th e as se t ap pr oa chto va lu e th e STN.Co m st oc k a re n otcred it ab le to de te rm in e th e to ta l v al ue of S TN.Com
. D. Resp on de nt ’s Exp ertW itne ss : Fra nc is Burn s Res po nd en t’s ex pe rt wi tn es s, M r. Burn s, u se d t he same dis co un te d c as hf lo w an al y si s o f th e in co m e ap pr oa chth atMr. Ri si us us edto va lu e th e STN.Co m st oc k in hi s fi rs t v al ua ti on . In ad di ti on , Mr. Bu rn s s ub st an ti al ly reli edon Mr. Ri si us ’ de te rm in at io ns inhi s fi rs t v al ua ti on rep ort, i nc lu di ng hi s p ro jecte d s al es for STN.Co m , whi chwere b as edon th e co m pa ny’ s h is to ric al pe rfo rm an ce an d o n co nv ers at io ns with m an ag em en t dur in g t he fir sty ear a fte r Mr. Ad el l’s d at e o f de ath. Mr . Burns , ho wev er, d et erm in edth atth e d at e-o f-d eath v al ue of t he STN.Co m

st oc k was $2 6,3 41 ,03 0, wh erea s M r. Ri si us de te rm in edth atit s d at e-o fde ath v al ue was $ 9.3 m il li on . The m os t s ig ni fic an t d iff

eren ce b etweenMr. Ri si us ’ fir stva lu at io n re po rt
an d M r. Burn s’ val ua ti on rep ort i s the ir t reat m en t o f th e in tang ib le va lu e th at Kev inpro vi de d S TN.Com . Whi le bo th Mr. Ri si us an d M r. Burn s re co gn iz edth at th e su cces s o f STN.Co m

de pe nd edon Kevi n’s re la ti on sh ip s wi th The Wordan d i ts
cu st om ers , th ey

acco un te d fo r th atva lu e d iff eren tl y . In h is fir strep ort M r. Ri si us- 51 -

[* 51 ] ap pl ie d a n e co no m ic ch arg e fo r Kev in ’s per so na l g oo dwi ll th atran ge d fr om $8 m il li on to $1 2 m il li on ov er the pro jecti onpe rio d, the reb y

in crea si ng STN.Co m ’s pro

jecte d o pe rat in g e xp en se s an d d ecre as in g i ts ne t ca sh flo w. Mr. Bu rn s, h owe ve r, de te rm in edth ata hypo th et ic al wil li ng in ve st orwou ldbe ab le to ret ai n Kev in for

anacce pt ab le sal ary, whi chhe de te rm in edto be 8.1 % of s al es , or ap pr ox im at el y

$1 .3 m il li on in20 06 . Mr. Bu rn s’ app ro ach res ul te d i n ahi gh er es ti m at e o f STN.Co m ’s pro jecte d n etcas hf

lo w, andth us a hi gh er v al ua ti on of t he STN.Co m

st oc k. Goo dwi ll is oft ende fin edas t he expe ct at io n o f co nt in ue d p atro na ge by
ex is ti ng cu st om ers . Netwo rkMo rn in g Led ge r Co . v. Un it edSta te s, 5 07 U.S. 54 6, 57 2- 57 3 (1 99 3) . A key

em pl oyee m ay

pe rs on al ly creat e an d o wn g oo dwi ll in de pe nd en t o f th e co rp or at e em pl oyer by dev el op in g c li en t re lati on sh ip s. Ma rti n Ice C ream

Co . v. Co m

m is si on er, 1 10 T.C. 18 9, 2 07 -2 08 (19 98 ). The co rp or at io n
m ay be ne fitfro m

us in g the pe rs on al ly dev el op edgo od wil l wh il e th e k ey em pl oyee works forth e en ti ty, bu t the co rp or at io n d oe s n otownth e g oo dwi ll an d t he refo re i t is no t co ns id ereda co rp or at e as se t. Id . at 2 08 . The em pl oyee m ay , ho wev er, tra ns fer any pers on al go od wil l t o t he em pl oyer th ro ug h aco ve na ntno t t o c om pe te
orothe r ag reem en t tha t tran sf ers th e rel at io ns hi ps to th e em pl oyer. See i d. at20 7; H&M, In c. v. Co m

m is si on er, T.C. Mem o. 2 01 2- 29 0. Ab se ntsu chanag reem en t,- 52 -

[* 52 ] th e em

pl oyer canno t fr eel y

us e th e as se t an d t he va lu e o f th e g oo dwi ll sh ou ldno t b e at tri bu te d t o the co rp or at io n. Kev in ’s go od wil l was pe rs on al ly owne d i nd ep en de ntof S TN.Com
. STN.Co m ’s su cces s was he av il y de pe nd en t o n Th e Wordbe cau se of t he ir sym bi ot ic rel at io ns hi p. To lau nc h Th e Word , itwas Kev in who co nt act ed rel ig io us lea de rs inth e Detro itareaan d R ev . Jac ks on inCh ic ag o. Al on g wi th hi s no tabl e co nt act s an d h is fathe r, he wentto Los Ang el es to m eetwith Di recTV rep res en ta ti ve s ab ou t b ro ad cas ti ng The Word . His m eet in g was su cces sf ul an d i t
ev en tu al ly ledto th e n at io na l b ro ad cas ti ng of Th e Wordon cab le tel ev is io n. Kev inwas the face of t he op erat io n b ecau se he was the in di vi du al so li ci ti ng co nt en t an d p ur su in g b ro ad cas t o pp ortu ni ti es . Kev in ’s per so na l g oo dwi ll was fu rth er d is pl ay edwhen m in is te rs ch os e to
co nt rib ut e to The Wordaft er l earn in g t ha t Th e Wordwas ano np ro fitorg an iz at io n. Whe n c on tri bu ti ng m in is te rs ask edab ou t o wne rs hi p o pp ortu ni ti es , Kevi n res po nd edth atThe Wordwas ano np ro fitorg an iz at io n a ndco ul d n otbe so ld . It ap pe aredto th e co nt rib ut in g m in is te rs th atth ere was no t a c or po rat io n e m

pl oyin g Kev in . The m in is te rs co nduc te d b us in es s wi th Kevi n b ecau se th ey tru st edhi m pe rs on al ly, no t b ecau se he was arep res en ta ti ve or e m pl oyee of STN.Com . In ot he r wor ds , STN.Com

co ul d n otownKevi n’s g oo dwi ll be cau se th e cu st om ers di d- 53 -

[* 53 ] no t re ad il y

real iz e th atKevi n a ctua ll y work edforSTN.Com . Thu s, h e cu lt iv at edpe rs on al go od wil l wi th th es e p ro fes si on al s an d h e in de pe nd en tl y own ed th e as se t o f pe rs on al go od wil l, n otSTN.Com
. Altho ug h M r. Ade ll was abo ardm em be r an d o ffi cer o f bo th STN.Com an d The W or d, Kev in op erat edbo th co m pa ni es . Kevi n h adth e educ at io n a nd ba ck gr oundto pe rfo rm

up li nk in g b ro ad cas t s erv ic es . After g radua ti ng with a
co m m un ic at io ns de gr ee, h e b ui ltMr. Ad el l’s fi rs t t el ev is io n s ta ti on , WADL, and
on acco un t o f hi s ex pe rie nc e wit h WADL be cam e in te res te d i n t he up li nk in g bu si ne ss . Usin g S TN.Com ’s pre de ces so r, STN Sat el li te , Kevi n l earn edab ou t the up li nk in g b us in es s b y

pro vi di ng up li nkservi ces to va rio us cu st om ers , in cl ud in g Hug he s El ectro ni cs Co rp ., a m ajorcu st om er b ro ug hton by K ev in . Kevi n, wh o co nt in ue d t o e xp lo re b us in es s o pp ortu ni ti es th atwou ldcap it al iz e o n h is ba ck gr ound , dec id edto co m bi ne hi s s uc ces s wi threl ig io us pro gr amm in g o n WADL with hi s upl in ki ng servi ces fro m STN Sate ll it e b y

crea ti ng The Wordan d it s upl in k s erv ic e p ro vi de r, STN.Com. Furth er, Kev indi d n ottrans fer h is go od wil l t o S TN.Com th ro ug h a
co ve nantno t t o c om

pe te or o th er ag reem en t. Kev in was fr ee t o l eav e STN.Co m an d u se hi s re la ti on sh ip s t o d ire ct ly com pe te ag ai ns t h is pre vi ou s emplo y er. If Kev inqu it , STN.Com

co ul d n otex cl us iv el y

us e th e rel at io ns hi ps th atKevi n- 54 -

[* 54 ] cu lt iv at ed ; thu s, the va lu e o f th os e rel at io ns hi ps sh ou ldno t b e at tri bu te d t o STN.Co m . Acco rd in gl y , Mr. Ri si us pro pe rly adjus te d S TN.Com ’s op erat in g e xp en se s to in cl ud e aneco no m ic ch arg e o f $8 m il li on to $1 2 m il li on forKevi n’s p ers on al go od wil l atanam ou nthi gh en ou gh to acco un t fo r th e si gn ifi can t v al ue of Ke vi n’s rel at io ns hi ps . See Derb y v. Co m m is si on er, T.C. Mem o. 2 00 8- 45 . Mr. Bu rn s, o n th e o th er h an d, n oton ly fail edto ap pl y aneco no m ic ch arg e fo r Kev in ’s per so na l go od wil l b utals o g av e to o l ow an est im at e o f acc ep tabl e co m pe ns at io n fo r Kev in , i.e., $ 1.3 mil li onin20 06 . This was e sp eci al ly so b ecau se Kevi n h adst ep pe d i nt o th e p os it io n o f Mr. Ad el l, wh o h adpre vi ou sl y m ad e b etweenov er $ 2 m il li on an d $7 m il li on of c om

pe ns at io n i n e ach of t he fiv e y ears be fo re h is de ath. III. Val ua ti on of t he Est at e’s STN.Co m Sto ck As s ta te d abo ve , th e Co urt g iv es no weig htto th e ex pe rt v al ua ti on s tha t the
es ta te subm it te d a t tria l, ex cep t fo r th e co ns is te nttre atm en t o f th e und erl y in g v al ue of STN.Com ’s ass et s. Th e Co urt al so fin ds th atres po nd en t’s ex pe rt v al ua ti on is
no t p ers ua si ve be cau se itdi d n otreas on ab ly accou ntforKevi n’s p ers on al go od wil l. The Co urt the refo re fi nd s tha t the est at e fai le d t o i nt ro du ce an y ev id en ce o r pr es en t an y

arg um en ts to pe rs ua de th e Co urt tha t the va lu e rep orte d o n i ts ori gi na l- 55 -

[* 55 ] ta x re tu rnwas i nc orrect . Thu s, the Co urt co nc lu de s tha t M r. Ri si us ’ fir st
va lu at io n re po rt o n the STN.Com st oc k i nc lu de d wi th th e o rig in al est at e ta x re tu rn was th e m os t cr ed it ab le be cau se itpro pe rly acco un te d fo r Kev in ’s per so na l go od wil l an d app ro pr ia te ly use d t he di sc ou nt edcas hf lo w ana lysis of the in co m e ap pr oa chto va lu e th e STN.Co m st oc k. Acco rd in gl y , onth e b as is of t he Co urt’s re vi ew of all of t he va lu at io n ev id en ce, g iv in g due reg ardto ou r ob se rv at io n a t tria l o f th e wit ne ss es for bo th pa rti es an d c on si de rin g the ir t es ti m on y an d t he ex pe rt r ep orts , th e Co urt co nc lu de s th atth e fai r m ark etva lu e o f th e STN.Co m st oc k o wne d b y

th e es ta te on Aug us t 13 , 20 06 , was $ 9.3 m il li on . IV. Sub st an ti al Est at e Tax Valu at io n Un de rs ta te m en t Pe na lty The Co urt h as fou ndth atth e v al ue of t he STN.Com st oc k h el d b y

th e es ta te is th e v al ue th e es ta te rep orte d o n i ts ori gi na l Fo rm 70 6. Th eref

or e, th e Co urt n eed
no t ad dr es s wh ethe r th e es tate is li ab le forth e subs tant ia l es ta te tax va lu at io n un de rs ta te m en t p en al ty und er s ect io n 6 66 2( g) or ( h) forth e STN.Co m st oc k. An
accu racy-rela te d p en al ty und er s ect io n 6 66 2 m ay st il l b e ap pl ic ab le to ot he r it em s fo un d i n the st ip ul at io n o f se tt le d i ss ue s an d fr om pa rti es ’ co nc es si on s. Fu rth er, se ct io n 6 66 2( c) i s i napp li cab le be cau se th ere was no t an un de rp aym en t o f ta x sh own on th e o rig in al Fo rm 70 6 fr om th e STN.Co m

st oc k. Th e acc ur acy-rela te d- 56 -

[* 56 ] pe na lty

un de r se ct io n 6 66 2 fo r subs tant ia l es ta te tax va lu at io n un de rs ta te m en ts of t he ba lanc e o f th e n ot ic e o f de fic ie nc y wil l b e cal cu la te d
se pa rat el y

on all it em s fo un d i n t he st ip ul at io n o f se tt le d i ss ue s an d fr om th e pa rti es co nc es si on s. The Co urt h as co ns id eredth e p art ie s’ arg um en ts an d, t o t he ex te ntno t ad dr es se d h erei n, co nc lu de s tha t the y are m oo t, i rrel ev an t, o r witho utm eri t. To re fle ctth e fo reg oi ng an d t he co nc es si on s o f th e p art ie s, Deci si on wil l b e en te red
un de r Ru le 15 5.