UNPUBLISHED

UNITED STATES COURT OF APPEALS

FOR THE FOURTH CIRCUIT

ROBERT T. GOW; KAY F. GOW, 

Petitioners-Appellants,

v.  No. 00-2119

COMMISSIONER OF INTERNAL REVENUE,

Respondent-Appellee. 

Appeal from the United States Tax Court.

(Tax Ct. No. 96-25651)

Argued: May 9, 2001

Decided: September 24, 2001

Before LUTTIG, MOTZ, and KING, Circuit Judges.

Affirmed by unpublished per curiam opinion. 

COUNSEL

ARGUED: Craig Dennis Bell, MCGUIRE WOODS, L.L.P., Richmond, Virginia, for Appellants. Rachel Ida Wollitzer, Tax Division,

UNITED STATES DEPARTMENT OF JUSTICE, Washington,

D.C., for Appellee. ON BRIEF: James C. Roberts, MAYS & VALENTINE, Richmond, Virginia, for Appellants. Paula M. Junghans,

Acting Assistant Attorney General, Teresa E. McLaughlin, Tax Division, UNITED STATES DEPARTMENT OF JUSTICE, Washington,

D.C., for Appellee. 
Unpublished opinions are not binding precedent in this circuit. See

Local Rule 36(c). 

OPINION

PER CURIAM: 

Dr. Kay F. Gow and her husband Robert T. Gow appeal the March

20, 2000 decision of the United States Tax Court, which ruled that

they jointly owed the Internal Revenue Service substantial deficiencies in connection with their individual returns for the tax years 1989

through 1992. The Gows contend that the Tax Court improperly valued shares of stock in Williamsburg Vacations, Inc. ("WVI") which

had been awarded to Dr. Gow by WVI as bonus compensation in

1989 and 1990. Additionally, the taxpayers maintain that the Tax

Court erred in concluding that certain travel-related expenses paid by

WVI were primarily for their personal benefit and constituted constructive dividends paid to Dr. Gow. As we explain below, each of

these contentions is without merit, and we affirm. 

I.

WVI was incorporated in July 1983 to develop a time-share resort

near Williamsburg, Virginia. The initial shareholders were Dr. Gow

and Horace Henderson, owning 650 and 350 WVI shares, respectively. On September 30, 1983, Dr. Gow sold 200 of her WVI shares

to E. Corbell Jones. That same day, Dr. Gow and Jones entered into

a voting trust agreement (the "Voting Trust") concerning all of their

WVI stock shares, designating Mr. Gow as the trustee.1 The Voting

Trust was to continue for ten years until September 30, 1993, and it

was amended on October 24, 1988, to include any WVI stock Dr.

Gow had acquired or would thereafter acquire. During each of the

four tax years in issue, 1989 through 1992, Dr. Gow served as both

1A voting trust is a device whereby two or more persons, owning stock

with voting powers, divorce the stock’s voting rights from its ownership,

retaining the latter in themselves and transferring the former to a trustee.

Black’s Law Dictionary 1577 (6th ed. 1990). 

2 GOW v. COMMISSIONER OF INTERNAL REVENUE
President of WVI and as Chairman of its Board of Directors. During

this period her husband served as Secretary of WVI, as a member of

its Board, and as trustee of the Voting Trust. 

On October 19, 1983, Dr. Gow, Henderson, and Jones signed an

agreement to purchase Powhatan Plantation, on which the time-share

resort was to be built, and they then assigned their rights in Powhatan

Plantation to WVI. On November 19, 1986, in order to alleviate

financing problems related to the resort’s construction, WVI, along

with Powhatan Plantation’s construction contractor (Bush Construction Co.) and its marketing company (Offsite International), entered

into a new venture called Powhatan Associates. Powhatan Associates

assumed ownership and operation of Powhatan Plantation, and WVI

became a one-third owner of Powhatan Associates. In 1997, Powhatan Associates sold the Powhatan Plantation resort to Signature

Resorts, Inc. for the sum of $59.1 million. 

On February 16, 1988, the WVI Board of Directors authorized the

issuance of 10,000 shares of stock to Dr. Gow as bonus compensation, at a maximum rate of 1,000 shares per year. Thereafter, on February 16, 1989, WVI issued 800 of these authorized shares of WVI

stock to Dr. Gow as bonus compensation (the "1989 stock"). The following year, on February 15, 1990, WVI awarded an additional 400

of these authorized shares as bonus compensation to Dr. Gow (the

"1990 stock").2 On their 1989 and 1990 jointly-filed tax returns, the

Gows reported the value of these two bonus compensation stock

awards (the "bonus compensation stock") at $40,000 and $20,000,

respectively. 

Between 1984 and 1992 the Gows made numerous visits, all paid

2The Stipulation of Facts filed by the parties in the Tax Court indicates

that after Dr. Gow received the 1989 and 1990 bonus compensation stock

she owned 1,700 of 2,250 outstanding shares of WVI. J.A. 613. By our

calculations, however, she owned 1,650 of 2,200 outstanding shares of

WVI. Regardless of which figures are correct, by 1990 Dr. Gow owned

the vast majority of the shares of WVI, that is, between seventy-five and

seventy-six percent. As such, her husband, as trustee of the Voting Trust

(possessing voting rights over her shares and Jones’s 200 shares), controlled WVI. 

GOW v. COMMISSIONER OF INTERNAL REVENUE 3
for by WVI, to vacation resorts in Hawaii and Florida. On at least

seven occasions, the WVI Board authorized funding of these trips,

purportedly for the Gows to remain knowledgeable about innovations

in the resort industry. During these trips, the taxpayers were guests in

lavish hotels and resorts costing up to $900 per night, and records

introduced at trial indicate that they dined in restaurants charging

upwards of $2000 for a single meal. 

WVI’s corporate tax returns were audited in July 1991, and the

Gows’ jointly-filed tax returns were thereafter included in the audit.

On August 29, 1996, the Commissioner of Internal Revenue issued a

notice of deficiency to the taxpayers for the tax years 1989 through

1992. In the notice of deficiency, the Commissioner asserted that the

fair market value of the 1989 stock and the 1990 stock, upon its

acquisition, was $1,600,000 and $800,000, respectively, and that the

taxpayers had received constructive dividends from WVI for 1989,

1990, 1991, and 1992, in the sums of $305,072, $395,225, $341,521,

and $323,281, respectively.3 The Gows thereafter petitioned in the

Tax Court for a redetermination of these deficiencies. They claimed

that, first of all, the Commissioner had improperly valued the bonus

compensation stock paid to Dr. Gow in 1989 and 1990, and secondly,

that the expenses paid by WVI in connection with the taxpayers’ several trips to Hawaii and Florida did not constitute constructive dividends paid by WVI to Dr. Gow. 

Following a trial conducted in March 1999, the Tax Court made

extensive findings of fact and conclusions of law. It filed its lengthy

3

In total, the Commissioner asserted annual income tax deficiencies

against the taxpayers in the sums of $522,221, $334,663, $109,047, and

$103,224 for 1989, 1990, 1991, and 1992, respectively. Pursuant to

I.R.C. § 6663(a), the Commissioner assessed seventy-five percent fraud

penalties of $391,666, $250,997, $81,785, and $77,418, for the years

1989, 1990, 1991, and 1992, respectively. In the event that the fraud penalties were found inapplicable, the Commissioner alternatively sought

accuracy-related penalties of twenty percent of the underpayment in

question. After reevaluation, the Commissioner increased the 1989 tax

deficiency to $877,054 and the 1991 tax deficiency to $153,214. Consequently, to reflect these increases, the Commissioner assessed larger civil

fraud penalties of $657,791 and $114,911, for those years, respectively.

4 GOW v. COMMISSIONER OF INTERNAL REVENUE
"Memorandum Findings of Fact and Opinion," on March 20, 2000

(the "Opinion"), disposing of the dispute in a manner generally favorable to the Commissioner. Gow v. Commissioner, 79 T.C.M. (CCH)

1680 (2000).4 At trial, the Commissioner’s experts testified that the

fair market value of the 1989 stock was $2,142,313 and that the fair

market value of the 1990 stock was $597,353. By contrast, an expert

witness retained by the Gows valued the 1989 stock at only $685,000

and the 1990 stock at only $299,000. The Tax Court, after evaluating

the conflicting evidence before it, adopted the values proposed by the

Commissioner’s experts. However, it reduced those values by applying the higher discount rates for two factors, denominated as "lack of

control" and "marketability" of Powhatan Associates and WVI,

presented by the Gows’ expert. In its valuation of the bonus compensation stock, the Tax Court considered and rejected the Gows’ contention (contrary to the evidence of their expert) that the stock had no

value whatsoever because it was subject to the Voting Trust. 

With respect to the several Florida and Hawaii trips, and the

expenses incurred incident thereto, the Tax Court determined that

their primary purpose was the personal enjoyment of the taxpayers,

not the economic benefit of WVI. It found that the expenses attributable to those trips, totalling over $1.3 million, constituted constructive

dividends paid by WVI to Dr. Gow, and it concluded that they were

taxable to the Gows in the years of their receipt, that is, 1989, 1990,

1991, and 1992. The court found yearly income tax deficiencies of

$410,796 in 1989, $196,961 in 1990, $102,441 in 1991, and $82,949

in 1992. Additionally, the court found that the Gows owed accuracyrelated penalties under I.R.C. § 6662(a) for the years 1989, 1990,

4The Tax Court did not accept the Commissioner’s position in its

entirety. In addition to rejecting some of the valuation testimony of the

Commissioner’s experts, the Tax Court also declined to assess the taxpayers the very substantial civil fraud penalties sought by the Commissioner. In denying the civil fraud penalties, the court recognized that the

fraud issue was close, finding that the Gows’ "conduct in this case comes

close to the line that separates a conscious ‘disregard of rules or regulations’ from an ‘intent to evade taxes believed to be owing.’" Gow, 79

T.C.M. at 1695. The Commissioner has not appealed the denial of civil

fraud penalties. 

GOW v. COMMISSIONER OF INTERNAL REVENUE 5
1991, and 1992 in the sums of $82,159.20, $39,392.00, $20,488.20,

and $16,589.80, respectively.5

On appeal, the Gows make three basic contentions. First, they

maintain that the Tax Court should have valued the 1989 stock and

the 1990 stock at zero. Second, they contend that the court’s methodology for determining the fair market values of the bonus compensation stock was clearly erroneous. Third, they insist that the travel

expenditures paid by WVI for their various trips to Hawaii and Florida were not for their personal benefit, and therefore are not taxable

to them as constructive dividends paid to Dr. Gow. We possess jurisdiction pursuant to 26 U.S.C. § 7482(a)(1). 

II.

We review de novo the Tax Court’s conclusions on questions of

law. Waterman v. Commissioner, 179 F.3d 123, 126 (4th Cir. 1999).

The Tax Court’s findings of fact, however, may be set aside only if

they are clearly erroneous, and factual determinations are clearly erroneous only if "on the entire evidence the reviewing court is left with

the definite and firm conviction that a mistake has been made." Zfass

v. Commissioner, 118 F.3d 184, 188 (4th Cir. 1997) (quoting Faulconer v. Commissioner, 748 F.2d 890, 895 (4th Cir. 1984)). As such,

determinations of fair market value made by the Tax Court after trial

constitute findings of fact, subject to our review only for clear error.

Burbage v. Commissioner, 774 F.2d 644, 646 (4th Cir. 1986). 

III.

A.

The trier of fact normally places a fair market value on corporate

stock by simply examining its market price. In closely-held corporations, however, there are often no arm’s-length sales of corporate

stock on which to base a determination of fair market value. In these

instances, the fair market value of such stock is determined by utiliz5As we observed, the Tax Court declined to impose the civil fraud penalties sought by the Commissioner under I.R.C. § 6663(a). 

6 GOW v. COMMISSIONER OF INTERNAL REVENUE
ing the well-accepted hypothetical willing buyer-willing seller concept. "The willing buyer-willing seller test of fair market value is

nearly as old as the federal income, estate, and gift taxes themselves."

United States v. Cartwright, 411 U.S. 546, 551 (1973). As the

Supreme Court has explained, fair market value is "the price at which

the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and

both having reasonable knowledge of relevant facts." Id. (quoting

Treas. Reg. § 20-2031-1(b) (1958)). In conducting the valuation

inquiry, the trier of fact must look to the "existing facts, circumstances, and factors at the valuation date that influence a hypothetical

willing buyer and willing seller in determining a selling price." Estate

of Newhouse v. Commissioner, 94 T.C. 193, 231 (1990). 

In this instance, application of the hypothetical willing buyerwilling seller test was appropriately employed by the Tax Court. As

reflected in its Opinion, the court looked to the acquisition dates in

1989 and 1990, i.e., when the WVI shares were delivered as bonus

compensation to Dr. Gow, and it imagined that the corporation

instead had sold those shares to some hypothetical third party. The

price that the hypothetical third party would have paid for the stock

on February 16, 1989, and February 15, 1990, was used to determine

its fair market value. See Gow, 79 T.C.M. at 1685-86 (citing United

States v. Cartwright, 411 U.S. 546 (1973)). 

The Gows contend that the Tax Court committed clear error in failing to conclude that the Voting Trust rendered all the bonus compensation stock valueless. Specifically, they assert that, because the WVI

shares awarded to Dr. Gow as bonus compensation in 1989 and 1990

were thereafter subject to the Voting Trust, Dr. Gow could not vote

them in the affairs of WVI and thus they were of no value.6 The Gows

seek to buttress this contention by making an analogy to the restrictions imposed by Securities and Exchange Commission Rule 144,

which requires the holder of certain securities to have held them for

at least two years before being able to sell them. In Estate of Gilford

6Notably, the Gows’ own testifying expert witness rejected this assertion, and he concluded that the shares should not be valued at zero. As

we have noted, he valued the 1989 stock at $685,000 and the 1990 stock

at $299,000. 

GOW v. COMMISSIONER OF INTERNAL REVENUE 7
v. Commissioner, 88 T.C. 38, 58-59 (1987), the Tax Court concluded

that in valuing stock, the restrictions imposed by Securities and

Exchange Commission Rule 144 should be taken into consideration.

By extension, the taxpayers assert that in valuing the bonus compensation stock the Tax Court should have considered the restrictions

imposed on the stock by the Voting Trust, and it should have concluded that all of Dr. Gow’s WVI stock was valueless. 

We have carefully considered the Gows’ contention in this respect,

both as made in their briefs and as presented at oral argument, and we

see it as meritless. A hypothetical buyer would not have purchased the

bonus compensation stock from the corporation subject to the Voting

Trust. The willing buyer is a purely hypothetical purchaser who does

not reflect the personal characteristics of the actual recipients of the

stock. See Estate of Watts v. Commissioner, 823 F.2d 483, 486 (11th

Cir. 1987) ("[T]he Commissioner is correct in arguing that the actual

subjective intention of the [parties] . . . is irrelevant."); Estate of

Bright v. United States, 658 F.2d 999, 1006 (5th Cir. 1981) ("[T]he

‘willing seller’ is not the estate itself, but is a hypothetical seller.");

Kolom v. Commissioner, 644 F.2d 1282, 1288 (9th Cir. 1981) (agreeing with the Tax Court that "the willing buyer/willing seller test does

not refer to Kolom’s own unwillingness to sell [the stock] under the

particular circumstances of his case."). The Voting Trust simply constituted a private agreement between stockholders of WVI and the

trustee. See supra note 1. Stock shares of a corporation are not

encumbered or diminished in value simply because some of its shareholders, after acquisition, have placed their shares into a voting trust.

In short, this Voting Trust was personal to Dr. Gow, and the restrictions imposed by it would not attach to any hypothetical purchaser.

The foregoing analysis also serves to defeat the Gows’ analogy to

Securities and Exchange Commission Rule 144, or for that matter to

any other federal securities statute or regulation. Any restrictions

imposed by federal securities statutes or regulations are binding on

both the actual purchaser (here, Dr. Gow) and also on any other purchaser (i.e., the hypothetical buyer). Restrictions imposed by voting

trusts, however, bind only the parties to the voting trust (here, Dr.

Gow). Voting trust restrictions therefore have no impact on a hypothetical purchaser who is not a party to the voting trust agreement.

Thus, any hypothetical purchaser would have purchased the 1989 and

8 GOW v. COMMISSIONER OF INTERNAL REVENUE
1990 bonus compensation stock free of the Voting Trust, and would

have paid fair market value for those stock shares. As such, the Tax

Court’s determination that the bonus compensation stock received by

Dr. Gow in 1989 and 1990 possessed the fair market values placed

on it, as of the dates on which she acquired it, was not clearly erroneous. 

B.

1.

It is apparent from the record that the Tax Court undertook an

extensive and careful analysis in order to fairly value the bonus compensation stock. After carefully considering the testimony of the taxpayers’ expert and that of two of the Commissioner’s experts, the

court accepted the opinions of the Commissioner’s experts on most

— but not all — of its valuation decisions. The court carefully

explained that, for multiple reasons, the Commissioner’s valuation

methodology was more persuasive. It observed that the Gows’ expert

had improperly reduced the value of the two companies, Powhatan

Associates and WVI, by (1) understating the income stream of Powhatan Associates, (2) applying an excessive thirty-two percent discount rate to Powhatan Associates’ estimated cash-flow stream, and

(3) using an excessive fifteen percent contingency discount that further reduced the adjusted book value of WVI. Nevertheless, the court

adopted the higher discount rates presented by the Gows’ testifying

expert for the factors of lack of control and marketability. 

2.

The Gows raise seven specific challenges to the Tax Court’s valuation methodology. They direct five of these objections to the Tax

Court’s methodology in valuing Powhatan Associates, and they make

two challenges to the court’s methodology in valuing WVI. 

First, the Gows assert that the Tax Court erred in projecting that

Powhatan Associates would sell 1800 and 1900 time-share intervals

in 1989 and 1990, respectively. They contend that these projections

were an unreasonable increase in the rate of such sales compared to

GOW v. COMMISSIONER OF INTERNAL REVENUE 9
past years. Second, and closely related to the first contention, the taxpayers maintain that the court overstated Powhatan Associates’ total

value by projecting sales revenue based on an excessive asking price

for the time-share intervals. Third, the Gows assign error to the Tax

Court’s failure to consider administrative, general, and sales costs in

valuing Powhatan Associates’ profits. Fourth, the taxpayers contend

that the Tax Court’s application of a twenty-five percent discount rate

to the net value of Powhatan Associates was too low, because it

accounted for only the property Powhatan Associates owned and did

not account for the accompanying business itself. Fifth, the Gows

assert that even though Powhatan Associates is a non-taxable entity,

WVI’s stake in Powhatan Associates is taxable. As such, they contend

that the value of Powhatan Associates should have been discounted

to reflect the state and federal taxes WVI incurs. 

The taxpayers make two challenges to the court’s valuation of

WVI. They contend, first of all, that the Tax Court overvalued WVI’s

assets by failing to discount the value of a $192,330 promissory note

that had been outstanding for over five years, maintaining that WVI

was likely to recover only a fraction of its face value. Additionally,

the taxpayers maintain that the value of WVI’s assets should have

been further discounted because of the risk of dissolution arising from

a lawsuit filed by one of WVI’s original shareholders. 

As we have observed, the Tax Court’s valuation determinations

constitute findings of fact, see Burbage, 774 F.2d at 646, which we

may set aside only if clearly erroneous. See Zfass, 118 F.3d at 188.

The various challenges to the Tax Court’s valuation methodology are

based either on the court’s determination to use one valuation theory

instead of another, or on its finding that certain facts should be given

more consideration than others. Our review of these valuation decisions is controlled by the principle that "[w]here there are two permissible views of the evidence, the factfinder’s choice between them

cannot be clearly erroneous." Id. (quoting Hendricks v. Commissioner, 32 F.3d 94, 97 (4th Cir. 1994)). We have made a careful and

thorough review of the Tax Court’s decision in this regard, and we are

not "left with the definite and firm conviction that a mistake has been

made." Id. We are therefore satisfied that the Tax Court’s valuation

findings with respect to Powhatan Associates and WVI were not

clearly erroneous. 

10 GOW v. COMMISSIONER OF INTERNAL REVENUE
C.

Finally, the taxpayers contend that the Tax Court erred in deciding

that the travel-related expenses for their trips to Hawaii and Florida

in the relevant years, totalling over $1.3 million, were primarily for

their personal benefit and constituted constructive dividends paid to

Dr. Gow by WVI. The applicable principle of law on this point is not

disputed: when a corporation makes an expenditure primarily to confer a substantial personal benefit on a shareholder, the value of the

benefit conferred is taxable as a constructive dividend. Mills v. Commissioner, 840 F.2d 229, 235 (4th Cir. 1988) (explaining that "if the

primary purpose of the transfer was to benefit the individual stockholder and the transfer had that effect" it is taxable constructive dividend); Hash v. Commissioner, 273 F.2d 248, 250 (4th Cir. 1959)

(noting that cancellation of shareholder debt to corporation constitutes

taxable constructive dividend). The question of whether WVI’s payment of the challenged travel expenses were constructive dividends

paid by WVI to Dr. Gow is also of a factual nature, and the Tax

Court’s finding in that regard may be set aside only if it is clearly

erroneous. See Zfass, 118 F.3d at 188. 

There was ample evidence presented at trial in support of the Tax

Court’s determination that the Gows’ travel expenses constituted constructive dividends. WVI funded, in their entirety, the Gows’ many

lavish trips to resorts in Hawaii and Florida. Indeed, each of these

excursions was taken around the Thanksgiving, Christmas, or New

Year’s holidays. While the Gows contend that these trips were for

research purposes, they made no written reports of their research.

Moreover, they offered no convincing explanation of why or how

WVI, as part owner of a resort in Williamsburg, Virginia, might benefit from their "research" at resorts thousands of miles away. In these

circumstances, we are unable to see the Tax Court’s findings on the

issue of the Gows’ vacation trips as clearly erroneous. 

IV.

Pursuant to the foregoing, we find no error in the Tax Court’s decision. We are therefore content to adopt its well-reasoned Opinion, and

we affirm. Gow v. Commissioner, 79 T.C.M. (CCH) 1680 (2000). 

AFFIRMED

GOW v. COMMISSIONER OF INTERNAL REVENUE 11