United States Tax Court

T.C. Memo. 2023-24

ESTATE OF WILLIAM A.V. CECIL, SR., DONOR, DECEASED, 

WILLIAM A.V. CECIL, JR., CO-EXECUTOR,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

ESTATE OF MARY R. CECIL, DONOR, DECEASED, WILLIAM A.V. 

CECIL, JR., CO-EXECUTOR,

Petitioner

v.

COMMISSIONER OF INTERNAL REVENUE,

Respondent

—————

Docket Nos. 14639-14, 14640-14. Filed February 28, 2023.

—————

David D. Aughtry and John W. Hackney, for petitioners.

Joel D. McMahan, Christopher A. Pavilonis, and A. Gary Begun, for 

respondent.

MEMORANDUM FINDINGS OF FACT AND OPINION

ASHFORD, Judge: William A.V. Cecil, Sr., and Mary Ryan Cecil 

(collectively, petitioners; respectively, Mr. Cecil and Mrs. Cecil) 

petitioned the Court separately to redetermine respondent’s 

determination of a $13,022,552 deficiency in his or her federal gift tax 

Served 02/28/23
2

[*2] for 2010.1 On November 18 and 19, 2010 (valuation dates), Mr. 

Cecil caused a transfer of his revocable trust’s class B (generally 

nonvoting) stock in the Biltmore Company (TBC) to petitioners’ five 

grandchildren, and Mrs. Cecil transferred class A (voting) stock in TBC 

to petitioners’ two children. Petitioners timely reported to the Internal 

Revenue Service (IRS) on Forms 709, United States Gift (and 

Generation-Skipping Transfer) Tax Return, that these transfers were 

gifts during 2010, and they reported a fair market value for each gift as 

of the time of the corresponding transfer.

The deficiencies result from respondent’s determination that 

petitioners’ reported fair market values were too low. Petitioners allege 

in their Petitions that the values were actually too high and, 

accordingly, that they are entitled to refunds. We consolidated the cases 

for trial, briefing, and opinion and now decide the fair market value of 

the transferred TBC stock (subject stock) on the valuation dates.

FINDINGS OF FACT

The parties have stipulated some facts, and the stipulated facts 

are so found. The Stipulation of Facts and the attached Exhibits are 

incorporated herein by this reference. Petitioners, now deceased, were 

husband and wife during all relevant times, and they resided in North 

Carolina when their Petitions were timely filed.

I. Family Background

Petitioners have two adult children, Bill Cecil and Diana Cecil 

Pickering (Dini Pickering). Bill Cecil and his wife, Virginia Rott Cecil, 

have three children: Ryan Jordan Vanderbilt Cecil, Aubrey Lea Amherst 

Cecil, and Willam Robert Vanderbilt Cecil. We refer to these five 

individuals collectively as the Cecil family. Dini Pickering and her 

husband, George W. Pickering II, have two children: Chase Kennedy 

Cecil Pickering and Devon Lee Cecil Pickering. We refer to these four 

individuals collectively as the Pickering family.

1Petitioners later died and were substituted for this proceeding by their coexecutor, William A.V. Cecil, Jr. (Bill Cecil). Additionally, some monetary amounts 

are rounded to the nearest dollar.
3

[*3] II. TBC

A. Background

1. The Biltmore House

Between 1889 and 1895, George W. Vanderbilt built the Biltmore 

House in the Blue Ridge Mountains in Asheville, North Carolina. The 

Biltmore House is a French Renaissance chateau that consists of over 

four acres of floor space and remains the largest privately owned house 

in the United States. Mr. Vanderbilt died in 1914, and he left the 

Biltmore House and its surrounding acreage to his only child, Cornelia 

Cecil née Vanderbilt (Mr. Cecil’s mother).

2. TBC

TBC, a Delaware corporation, was formed on March 30, 1932, by 

Cornelia Cecil and others, and during the same year, it became eligible 

to conduct business in North Carolina. Also in 1932 the Biltmore House 

and its surrounding acreage (Estate) were contributed to TBC. In 1979 

Mr. Cecil and his brother, George Cecil, then TBC’s owners, disagreed 

on TBC’s future. They ended up breaking up TBC, with George Cecil 

surrendering all of his shares in TBC in exchange primarily for TBC’s 

dairy operations inclusive of 3,000 acres of the Estate. TBC elected to 

be taxed as an S corporation in 1982 and continues to be characterized 

as such.

B. Operations and Relevant Financial Information

1. Roles of Dini Pickering and Bill Cecil

Dini Pickering is vice chairman of TBC’s board of directors. She 

has worked for TBC for approximately 32 years and has served in that 

position over approximately the last 15 of those years.

Bill Cecil is TBC’s (and its related entities’) president and chief 

executive officer. He has served in those positions for over 20 years.

2. Business Operations

TBC operates primarily in the travel and tourism/historic 

hospitality industry. The heart of its business is offering its guests the 

opportunity to go back in time and experience the Gilded Age. 

Originally, TBC only offered tours of the Biltmore House and the 
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[*4] adjoining gardens, and the tours were considered a roadside 

attraction. In 1995 TBC instituted a long-range plan to become a 

multiday destination and eventually expanded the Estate to include 

hotels, restaurants, retail stores, and various outdoor activities. During 

2010 TBC operated at least 17 lines of business and employed 1,304 

employees (over 1,800 combined full-time and part-time employees 

including associated businesses).

3. Revenue Sources

TBC’s paying visitors may access five main areas of the Estate: 

the Estate entrance, including the Gate House Shop, Lodge Gate, Group 

Sales Office, and Reservations and Ticket Center; Biltmore House and 

Gardens; Antler Hill Village and Winery; Inn on Biltmore Estate; and 

Deerpark, including the Deerpark Restaurant, Lioncrest, and carriage 

and trail ride barns. TBC generates revenue from five retail outlets; 

eight restaurants, one of which is a catering facility; landscaping; tickets

and tours (including segway tours); Land Rover driving experience and 

school; river rafting; fly fishing; equestrian training; timber production; 

and farming. During 2010 TBC generated most of its revenue from 

admissions to its premises and from restaurant and merchandise sales.

With the exception of 2008, a year within the Great Recession of 

2007 through 2009 and for which TBC realized a $1,459,000 loss, TBC 

has realized a profit every year since 1995. During its fiscal year ended 

June 30, 2010, adult visitors paid between $35 and $69 for admission 

depending on the time of the year. In 2010 TBC reported that it realized 

approximately $70 million in revenue. Of that total revenue, TBC 

realized $38,437,950 from admission tickets.

4. Estate’s Ranges

The Estate has a West Range (approximately 3,000 acres of land) 

and an East Range. The West Range contains all the forestry and 

farming, and it is used for agricultural, forestry, and recreational 

activities. Busbee Mountain, one of TBC’s operating and incomegenerating assets, is on the West Range. Busbee Mountain is the main 

source of water for the Estate, and it generates annually 28 million 

gallons of water and $110,000 in water savings. TBC also conducts 

timber operations and leases cell phone towers on Busbee Mountain.

In 1993 TBC sold the West Range to Bill Cecil and Dini Pickering 

for $6 million and as part of that sale leased back the West Range. This 

transaction was meant to ensure that the West Range remained in 
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[*5] petitioners’ extended family forever. TBC received a 30-year 

installment note as payment for the sale. On the valuation dates, 

$2,700,000 of that note’s principal remained unpaid.

TBC owns the East Range. The East Range includes places for 

equestrian, hiking, biking, farming, and timber activities. Also on the 

East Range are the Biltmore House, formal gardens, Antler Hill Village, 

a vineyard, the Inn on Biltmore Estate, Deerpark, retail shops, 

restaurants, and a ticket center. TBC uses all of the East Range to 

generate earnings.

5. 2010 Assets and Liabilities

TBC’s reported assets and liabilities were $53,580,000 and 

$33,349,000, respectively, on November 30, 2010. Included in its assets 

were agricultural land in North Carolina and a multimillion dollar 

portfolio of fine art, antiques, and other collectibles. Its artwork 

included the following valuable paintings: (1) the Portrait of Frederick 

Law Olmsted by John Singer Sargent; (2) the Waltz by Anders Zorn; 

(3) Mrs. George W. Vanderbilt by Giovanni Boldini; (4) Rosita by Ignacio 

Zuloaga y Zabaleta, and (5) Angelique and Roger on the Hippogriff by 

Antoine-Louis Barye.

TBC has 46 trademarks and a trade name registered with the 

U.S. Patent and Trademark Office.

III. Ownership and Related Agreements

A. 1989 Ownership and 1989 Shareholders’ Agreement

Mrs. Cecil, Bill Cecil, and Dini Pickering were three of TBC’s 

shareholders on December 26, 1989, each owning 1 share of its then 

class B common stock. On that day, they entered into a Shareholders’ 

Agreement. As of that time, TBC had three classes of stock.

B. 1997 Amendment to Certificate of Incorporation

On August 8, 1997, TBC’s Certificate of Incorporation was 

amended to reclassify TBC’s three existing classes of stock into two 

classes of common stock inclusive of seven issued shares of class A 

common stock and 9,993 issued shares of class B common stock. These 

two classes of stock differ only in their voting rights. The amendment 

states as to their voting rights:
6

[*6] Class A Common: Each holder of class A Common Stock 

shall be entitled to one vote for each share of such stock 

standing in his name on the books of the Corporation. Said 

voting rights shall be with respect to all matters that may 

be subject to a vote of stockholders under the Bylaws of the 

Corporation, under the General Corporation Law of the 

State of Delaware, or otherwise.

Class B Nonvoting Common: The holders of class B 

Nonvoting Common Stock of the Corporation shall not be 

entitled to vote on any matter except as to matters in 

respect of which they shall be indefeasibly vested by 

statute with such right.

C. Voting Trust Agreement

On June 30, 1999, TBC, petitioners, Bill Cecil, and Dini 

Pickering, as the corporation and its shareholders, respectively, and 

Henry P. Hoffstot, Jr., as an “independent trustee,” entered into a Voting 

Trust Agreement (1999 Voting Trust Agreement). The 1999 Voting 

Trust Agreement was meant:

to secure continuity and stability in the Company’s policies 

and management and to coordinate the Company’s policies 

and management with other Biltmore Estate Business 

Entities, the stock of which is owned by some or all of the 

Shareholders, and in order to provide that the four 

Shareholders who sign this Agreement and the lineal 

descendants of these four Shareholders, will control for the 

maximum time legally permissible all the development, 

use and management of the Company as well as policy and 

management decisions pertaining to other Biltmore Estate 

Business Entities, these Shareholders have determined to 

place all their shares of voting stock in the Company with 

the Trustees and their successors in Trust as hereafter 

provided.

In accordance with the 1999 Voting Trust Agreement, each 

signatory shareholder deposited his or her stock in a trust and acted as 

trustee. The only persons eligible to later become a trustee were lineal 

descendants of Bill Cecil and Dini Pickering. While petitioners are 

trustees, all decisions had to be made by a majority of the trustees. If 

petitioners were not trustees, decisions would be made by a majority of 
7

[*7] each side of the two families (the Cecils and the Pickerings) with 

each family having a 50% voting strength. The trust had a ten-year 

term.

Any decision to sell any land, structure, assets or stock of TBC or 

any present or future Estate business entity required the vote of twothirds of the Cecil family trustees and two-thirds of the Pickering family 

trustees. The trustees set TBC’s policies and general operating 

procedures relating to the operation of TBC and the Estate. The 

Trustees elected the board of directors and confirmed the appointment 

of senior officers.

IV. Family Business Preservation Program

A. Background

In or around 2000 or 2001 Dini Pickering met Craig Aronoff, a 

consultant with the Family Business Consulting Group. Mr. Aronoff 

encouraged Dini Pickering to hold family meetings and to create a 

structure for her family that would allow them to operate TBC more 

efficiently. Dini Pickering began exploring family business planning. 

She read books on the subject as well as material from the Family 

Business Consulting Group.

Dini Pickering later started the Family Business Preservation 

Program for TBC in 2003. As a part of the program, petitioners, the 

Cecil family, and the Pickering family would hold two meetings 

annually. During these meetings they would work on policies and 

educational programs for the benefit of their families, which were 

intended to help them become more effective owners of TBC.

The children of Bill Cecil and Dini Pickering attended these 

meetings. Those children were 8 to 15 years old as of the first meeting. 

In the early years Dini Pickering strived innovatively to keep the 

children focused in the meetings and participating in the business 

discussions. As the children grew older, they attended educational 

seminars that focused on topics such as financial literacy or familybased money management. These meetings and seminars were 

intended to prepare the next generation to take over TBC’s 

management.
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[*8] B. Policies

Petitioners, the Cecil family, and the Pickering family adopted 

the following three policies as a result of these meetings. The first 

policy, the premarital policy, requires that each family member enter 

into a prenuptial agreement before marriage. The prenuptial 

agreement must ensure that all separate property remain separate 

during the marriage and not be subject to a division in the event of a 

divorce. This policy is intended to ensure that all TBC stock remain in 

the Cecil and the Pickering families. The second policy, the family 

employment policy, requires that any Cecil or Pickering family member 

seeking employment in TBC must have a four-year college degree and 

at least one year of outside employment. The third policy, a family code 

of conduct, requires that members of the Cecil and the Pickering families 

treat others with respect, act ethically, obey the law, respect 

confidentiality, avoid conflicts of interest, protect family business 

property, represent the best interests of the family and family business, 

and practice open, honest, and effective communication. The three 

oldest of the five children of the Cecil and the Pickering families have 

adhered to these policies. None of these three children has any desire 

to ever sell the TBC shares he or she would later receive (see further 

discussion infra p. 28), or to vote to liquidate TBC’s assets.

V. 2009 Shareholders’ Agreement

On December 16, 2009, the shareholders that owned all issued 

and outstanding shares of TBC stock entered into the 2009 

Shareholders’ Agreement. The 2009 Shareholders’ Agreement states:

[T]he Parties agree that the success of the Corporation 

requires the active interest, support, and the personal 

attention of the Shareholders and for that reason it is not 

advisable to permit the stock of the Corporation to go upon 

the open market for sale except as otherwise permitted 

under the terms of this Agreement.

TBC and its shareholders confirmed the purpose of the 2009 

Shareholders’ Agreement as providing (i) the continued ownership and 

control of all issued and outstanding TBC shares; (ii) the harmonious 

and future conduct of the business; and (iii) a stock transfer mechanism 

to operate when a shareholder dies, becomes incapacitated, or otherwise 

needs to sell company stock.
9

[*9] Under the terms of the 2009 Shareholders’ Agreement, a 

shareholder may transfer, with or without consideration, his or her 

shares to any other shareholder who is a party to the agreement or to 

any of the shareholder’s lineal descendants. As to a proposed transfer 

to a nonfamily member, the transferor must first notify the other 

shareholders and TBC of the proposed transfer and receive a notice of 

consent from each shareholder. If a shareholder receives an offer from 

a nonfamily member to buy shares from the shareholder, the 

shareholder must notify the other shareholders and TBC within ten 

days at which point the other shareholders may purchase all but not less 

than all of the shares at the lesser of the purchase price or the price set 

forth by a valuation method contained in the 2009 Shareholders’ 

Agreement. As a condition of a transfer to any person who is not bound 

by the 2009 Shareholders’ Agreement, the transferee must agree to be 

bound by the terms of that agreement.

VI. Gift Transfers

A. 2010

Immediately before November 18, 2010, TBC’s outstanding stock 

was owned as follows:

Owner Number of Shares Percentage2

Class A Common Stock

Mr. Cecil, Trustee under the William 

A.V. Cecil Revocable Trust 

Agreement dated August 13, 1999 

3 42.86%

Mrs. Cecil 1 14.29%

Bill Cecil 1 14.29%

Dini Pickering 1 14.29%

Bill Cecil and Dini Pickering, as 

tenants in common

1 14.29%

Total Shares 7

Class B Common Stock

Mr. Cecil, Trustee under the William 

A.V. Cecil Revocable Trust 

Agreement dated August 13, 1999 

9,337 93.37%

Bill Cecil 328 3.28%

Dini Pickering 328 3.28%

Total Shares 9,993

2These percentages are the percentages which the parties stipulated.
10

[*10] B. Gifts

On November 18, 2010, Mrs. Cecil transferred, by gift and in 

undivided equal shares, her interest in one share of TBC class A common 

stock to Bill Cecil and Dini Pickering. Two new stock certificates were 

created for Bill Cecil and Dini Pickering, each certificate stating that 

“[t]he sale, transfer, assignment or pledge of this stock certificate is 

restricted pursuant to the terms of a Shareholder Agreement dated the 

16 day of December 2009.”

On November 19, 2010, Mr. Cecil, in his capacity as trustee of the 

William A.V. Cecil Revocable Trust, transferred 9,337 shares of TBC 

class B common stock to himself. On the same day, he transferred by 

gift his interest in those shares to petitioners’ five grandchildren, in 

separate trusts, as follows:

Donee Class B Common Stock

Shares Percentage3

William A.V. Cecil Irrevocable Qualified 

Subchapter S Trust for Ryan Cecil

1,556.16 and 2/3 15.57%

William A.V. Cecil Irrevocable Qualified 

Subchapter S Trust for Aubrey Cecil

1,556.16 and 2/3 15.57%

William A.V. Cecil Irrevocable Qualified 

Subchapter S Trust for Robert Cecil

1,556.16 and 2/3 15.57%

William A.V. Cecil Irrevocable Qualified 

Subchapter S Trust for Chase Pickering

2,334.25 23.36%

William A.V. Cecil Irrevocable Qualified 

Subchapter S Trust for Devon Pickering

2,334.25 23.36%

Total Shares 9,337

Each stock certificate stated that “[t]he sale, transfer, assignment 

or pledge of this stock certificate is restricted pursuant to the terms of a 

Shareholder Agreement dated the 19th day of November 2010.” This 

Shareholder Agreement added the trusts for the grandchildren as 

signatories.

Each gift of the class A and B common stock imposed upon the 

shareholder the obligation to pay tax on his or her distributive share of 

TBC’s income, with no guaranty of sufficient dividend distributions to 

pay that tax.

3These percentages are the percentages which the parties stipulated.
11

[*11] VII. Voting Rights and Stock Transfer Restrictions

TBC’s Articles of Incorporation, TBC’s Amended and Restated 

By-Laws as of August 21, 2009 (By-Laws), and the 2009 Shareholders’ 

Agreement set out rights and powers with respect to the TBC stock as 

of the valuation dates.

The By-Laws regulate how shareholders, board members, and 

executives control TBC. Each class A common stock shareholder 

receives one vote per share, with decisions made by the majority of the 

votes cast. A quorum generally requires the presence of two-thirds of 

all outstanding class A common stock to be present in person or by proxy.

TBC’s board of directors (Board) manages its business and affairs. 

Class A common stock shareholders elect directors by a majority vote. 

The presence in person of a majority of the Board constitutes a quorum 

to transact business. The Board generally acts by a majority vote of the 

directors. The Board elects officers by majority vote. By majority vote, 

the Board decides when and whether to make the accounts, books, 

minutes, and other records of TBC available to stockholders. The Board 

declares dividends by majority vote.

VIII. Notices of Deficiency 

Each petitioner timely filed Form 709 for 2010. On the Forms 

709, petitioners properly elected to treat the transfers of their stock as 

split gifts under section 2513.4 Each form included as an attachment an 

appraisal of the gifts by Dixon Hughes based on a weighted average of 

the subject shares (using an asset approach and an income approach). 

Petitioners commissioned the Dixon Hughes appraisal for purposes of 

reporting their gift tax liabilities on their Forms 709. Petitioners 

reported a value of $3,308 per share for class A common stock and $2,236 

per share for class B common stock. Each petitioner reported total 

taxable gifts of $10,438,766.

Petitioners’ Forms 709 were selected for audit, and respondent 

ultimately issued petitioners separate notices of deficiency on March 24, 

2014. The notices of deficiency disregarded the existence of TBC and 

attributed no weight to its going-concern value. The numerical 

4Unless otherwise indicated, all statutory references are to the Internal 

Revenue Code, Title 26 U.S.C., in effect at all relevant times, all regulation references 

are to the Code of Federal Regulations, Title 26 (Treas. Reg.), in effect at all relevant 

times, and all Rule references are to the Tax Court Rules of Practice and Procedure.
12

[*12] adjustments in the notices of deficiency reflect the enterprise 

value of TBC based solely on an asset liquidation assumption.

OPINION

I. Burden of Proof

Except as otherwise provided by statute or determined by the 

Court, the Commissioner’s determinations are presumed correct, and 

taxpayers bear the burden of proving that the determinations are 

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

The burden of proof (or a portion thereof) may sometimes shift to the 

Commissioner. See, e.g., § 7491(a) (providing that the burden of proof in 

a gift tax setting such as here may shift to the Commissioner as to 

discrete factual issues if certain conditions are met); Helvering v. Taylor, 

293 U.S. 507, 515 (1935) (holding that the burden of going forward with 

evidence to establish the amount of a deficiency may shift to the 

Commissioner where determination is arbitrary and excessive). The 

record at hand allows us to decide these cases on the basis of a 

preponderance of the evidence, without regard to which party bears the 

burden of proof. We therefore proceed to do so and need not and do not 

decide which party actually bears the burden of proof. Cf. Blodgett v. 

Commissioner, 394 F.3d 1030, 1039 (8th Cir. 2005), aff’g T.C. Memo. 

2003-212; Polack v. Commissioner, 366 F.3d 608 (8th Cir. 2004), aff’g

T.C. Memo. 2002-145; Knudsen v. Commissioner, 131 T.C. 185, 189 

(2008), supplementing T.C. Memo. 2007-340; Deskins v. Commissioner, 

87 T.C. 305, 322 n.17 (1986).

II. Gift Valuation

A. In General

A tax is imposed on the transfer of property by gift during a 

calendar year. § 2501. The value of a gift made in property is “the value 

thereof at the date of the gift.” § 2512(a). That value is “the price at 

which such 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.” Treas. Reg. 

§ 25.2512-1; see also Rev. Rul. 59-60, 1959-1. C.B. 237. The willing buyer 

and the willing seller are hypothetical persons rather than specific 

individuals or entities, and the characteristics of these hypothetical 

persons are not necessarily the same as the personal characteristics of 

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

Commissioner, 94 T.C. 193, 218 (1990). The valuation of stock is 
13

[*13] ultimately a question of fact in which the trier of fact must weigh 

all relevant evidence and draw appropriate inferences. CSX Transp.,

Inc. v. Ga. State Bd. of Equalization, 552 U.S. 9, 18 (2007); Hamm v. 

Commissioner, 325 F.2d 934, 938 (8th Cir. 1963), aff’g T.C. Memo. 1961-

347; Bank One Corp. v. Commissioner, 120 T.C. 174, 306 (2003), aff’d in 

part, vacated in part on other grounds, and remanded in part sub nom.

JPMorgan Chase & Co. v. Commissioner, 458 F.3d 564 (7th Cir. 2006).

B. Valuation Approaches

1. Overview

Generally, three approaches are used to determine the fair 

market value of property: (1) the market approach, (2) the income 

approach, and (3) the asset-based approach. The question of which of 

these approaches to apply in a given case is a question of law. Bank One 

Corp., 120 T.C. at 306–07.

2. Market Approach

The market approach compares the subject property with similar 

property sold in an arm’s-length transaction in the same timeframe. Id.

at 307. This approach values the subject property by taking into account 

the sale price of the comparable property and the differences between 

the comparable property and the subject property. Id. This approach 

measures value properly only when the comparable property has 

qualities substantially similar to those of the subject property. Id.

3. Income Approach

The income approach capitalizes income and discounts cashflow. 

Id. This approach values property by computing the present value of 

the estimated future cashflow as to that property. Id. The estimated 

cashflow is ascertained by taking the sum of the present value of the 

available cashflow and the present value of the residual value. Id.

4. Asset-Based Approach

The asset-based approach generally values property by 

determining the cost to reproduce it. Id. One example of an asset-based 

approach in the setting of a nonpublicly traded corporation is to value 

the corporation on the basis of the fair market value of its net assets 

(i.e., the fair market value of its assets less its liabilities). See, e.g.,
14

[*14] Estate of Jones v. Commissioner, T.C. Memo. 2019-101, at *29; 

Estate of Noble v. Commissioner, T.C. Memo. 2005-2, slip op. at 17.

C. Split Gifts

Section 2513(a) provides: “A gift made by one spouse to any 

person other than his spouse shall, for the purposes of this chapter, be 

considered as made one-half by him and one-half by his spouse,” as long 

as both spouses have properly signified their consents to that treatment. 

Section 2512, which governs the valuation of gifts, is found in chapter 

12 of subtitle B of the Internal Revenue Code, which is the chapter 

containing section 2513. Consistent with petitioners’ proper election to 

treat each gift here as a split gift under section 2513, we consider those 

gifts as made one half by Mr. Cecil and one half by Mrs. Cecil.

III. Experts

A. General

The parties dispute the value of the subject stock, and each party 

has retained and at trial called experts to testify in support of their or 

his proffered value of the stock. In deciding valuation cases, courts often 

hear the views of expert witnesses. See generally Rule 143(g) (providing 

that an expert’s direct testimony in a proceeding in this Court is 

generally “heard” by way of his or her expert report). We are not bound 

by the opinion of an expert witness, and we may accept or reject expert 

testimony in the exercise of our sound judgment. Helvering v. Nat’l 

Grocery Co., 304 U.S. 282, 295 (1938); Bank One Corp., 120 T.C. at 332;

Estate of Newhouse, 94 T.C. at 217. We may accept the opinion of one 

expert over that of another, see Buffalo Tool & Die Mfg. Co. v. 

Commissioner, 74 T.C. 441, 452 (1980), and we may select what portions 

of each expert’s opinion, if any, to accept, Parker v. Commissioner, 86 

T.C. 547, 562 (1986). Because valuation involves an approximation, the 

figure at which we arrive need not be directly traceable to specific 

testimony if it is within the range of values that may be properly derived 

from consideration of all the evidence. Estate of True v. Commissioner, 

T.C. Memo. 2001-167, slip op. at 171 (citing Silverman v. Commissioner, 

538 F.2d 927, 933 (2d Cir. 1976), aff’g T.C. Memo. 1974-285), aff’d, 390 

F.3d 1210 (10th Cir. 2004).
15

[*15] B. Petitioners’ Experts

Petitioners’ experts are David Adams and George Hawkins.

1. Mr. Adams

a. Overview

Mr. Adams works for Adams Capital, Inc., as a business valuation 

appraiser. He founded Adams Capital, Inc., and beforehand was 

engaged in business valuation services with Coopers & Lybrand, LLP,

and KPMG Peat Marwick, LLP. He has a master’s in business 

administration from Georgia State University and is a member of the 

American Society of Appraisers. He appraised the subject stock relying 

exclusively on TBC’s representations and financial documentation.

Mr. Adams appraised the stock using the income approach and 

the market approach. As to the former, he applied the discounted 

cashflow (DCF) method. As to the latter, he applied the guideline public 

company (GPC) method and the similar transactions method. He 

rejected the asset-based approach of valuing TBC’s assets directly 

because the number of shares was too small to force a liquidation and 

he had heard from TBC’s owners and management that TBC would not 

be liquidated in the foreseeable future. He concluded that TBC is 

unlikely to be sold within the next 30 years.

b. DCF

Mr. Adams concluded for purposes of his DCF analysis that a 

discount rate of 15% was appropriate based on TBC’s weighted average 

cost of capital. He predicted that TBC would grow by 1% in 2010, 5% in 

2011, 5% in 2012, 5% in 2013, 4% in 2014, and 3% in 2015. He totaled 

his forecasted cashflows, subtracted interest-bearing debt, added back 

the value of any nonoperating asset, and applied a 30% discount for a 

lack of marketability to arrive at $9,030,059.

c. GPC

The GPC is used to calculate the fair market value of a business 

on the basis of comparison to publicly traded companies in similar lines 

of business. The conditions and prospects of companies in similar lines 

of business depend on common factors such as overall demand for their 

products and services. Comparable company values are measured on 

the basis of stock prices. The comparable company value is divided by 
16

[*16] an earnings parameter (e.g., sales, net income, earnings before 

interest and taxes (EBIT)) or balance sheet parameter (e.g., total 

shareholder’s equity, assets) to arrive at a valuation multiple. The 

resulting multiple is applied to the subject company to arrive at its fair 

market value.

Mr. Adams identified five companies as comparable companies. 

One company, Peak Resorts, Inc., operates 13 ski resorts in the Midwest 

and Northeast United States. It offers activities, services, and 

amenities, such as skiing, snowboarding, dining, lodging, equipment 

rental and sales, and ski and snowboard instruction. It manages hotels 

in New Hampshire and Vermont and a restaurant in Pennsylvania. The 

second company, Pairi Daiza SA, operates a park in Belgium that houses 

approximately 4,000 animals. It also participates in approximately 30 

scientific programs for the conservation of endangered species. The 

third company, Premier Exhibitions, Inc., presents museum quality 

touring exhibitions to the public worldwide. It also develops, deploys, 

operates, and presents exhibition products in exhibition centers, 

museums, and nontraditional venues; sells merchandise through the 

internet; publishes exhibition catalogs; and provides ancillary services 

such as audio tours. The fourth company, Vail Resorts, Inc., operates 

mountain resorts and urban ski areas in the United States. Its resorts 

offer various winter and summer recreational activities (such as skiing, 

snowboarding, sightseeing, and guided hiking), and offer skiing and 

snowboarding lessons, equipment rentals, retail merchandise services, 

dining services, and private club services. Vail Resorts, Inc., also owns 

and leases commercial real estate and provides real estate brokerage 

services, and owns and/or manages various luxury resorts and 

condominiums. The fifth company, Whistler Blackcomb Holdings, Inc., 

operates a four season mountain resort in Canada and offers a variety 

of summer and winter activities such as mountain biking, hiking, 

fishing, golfing, kayaking, tennis, snowmobiling, cross-country skiing, 

and horseback riding. It also operates 18 bars and restaurants, 19 retail 

shops, and 22 rental shops.

Mr. Adams’s GPC analysis looked at the size, growth, and 

liquidity of TBC and his comparable companies. It used the last 12

months’ (LTM) earnings before income tax, depreciation, and 

amortization (EBITDA) and LTM EBIT multiples because, he 

rationalized, TBC is less profitable than the comparable companies 

because of their larger scale. He applied a 15% discount to the multiples 

because of TBC’s lack of diversification and resistance to technological 

development. He added cash and subtracted debt from the enterprise 
17

[*17] value to arrive at a 100% equity value on a noncontrolling, 

marketable basis and then applied a 30% discount for a lack of 

marketability to arrive at $10,540,694 on a noncontrolling, 

nonmarketable basis.

d. Similar Transactions

Under the similar transactions method, a value estimate for the 

subject company is developed by using information obtained from 

various databases on actual sales of closely held and public businesses. 

The goal is to define the market for companies operating in the same 

industry as a subject company by considering the data as a statistical 

ensemble of value multiples that are representative of the entire 

market. These valuation multiples are ratios that compare the 

numerator or the price paid for a controlling interest in a closely held 

corporation with various measures of operating results in the financial 

position in the denominator.

Mr. Adams selected six acquisitions as similar transactions. The 

first acquisition was that of USJ Co., Ltd., which operated a theme park 

in Japan. Its amenities included restaurants, riding and show 

attractions, hotels, and shopping and entertainment facilities. The 

second acquisition was that of Paramount Canada’s Wonderland Park, 

which owns and operates an amusement park. It offers thrill rides, 

family rides, shopping, splash works, live entertainment, and dining 

activities. The third acquisition was that of Festival Fun Parks, LLC, 

which owns and operates family entertainment centers and water parks 

in the United States. The fourth acquisition was that of American Golf 

Corp., which owns 22 fee simple and 6 leasehold golf clubs. The fifth 

acquisition was that of Northern Racing, PLC, which acquires, manages, 

and develops horseracing courses in the United Kingdom. The 

company’s nine horseracing courses stage various events ranging from 

large-scale conferences and banquets to business meetings and music 

events. The sixth acquisition was that of Sydney Attractions Group, Pty

Ltd., which offers management and operation of the Sydney Aquarium 

in Australia. It also operates Manly Oceanworld, an aquarium; 

Skywalk, an outdoor viewing adventure; Wildlife World, a zoo; and 

Koala Gallery, a small wildlife park; and it offers Shark Dive Xtreme, a 

product for scuba divers to swim with sharks, and OzTrek, a virtual 

reality ride through Australia’s cultural history and geography.

Mr. Adams analyzed and computed purchase price multiples from 

the revenue, EBITDA, and EBIT of these six companies. After applying 
18

[*18] the multiples, he added cash and subtracted debt from the 

indicated enterprise value to arrive at the indicated equity value of 100% 

on a controlling, marketable basis. He applied a 20% discount for a lack 

of control and a 30% discount for a lack of marketability to arrive at a 

100% equity noncontrolling, nonmarketable basis of $12,161,048.

e. Final Values

Mr. Adams chose a combination of the income and market 

approaches to ascertain the fair market value of the subject stock 

because, he concluded, a buyer of a restricted minority interest would 

assume continuation of TBC based on existing dividend trends, rather 

than assume any liquidation in the face of the opposition to liquidation. 

He gave each of his methods a weighted average. He gave the DCF 

method a weighted average of 50% because it was based on TBC’s 

financial projections, expectations, and risk factors. He gave each of the 

GPC and the similar transactions methods an equal weighted average 

of 25%. His analysis also included looking at various methods to apply 

“tax affecting” (discussed infra pp. 25–27), and he arrived at one value 

for each class of stock if he took tax affecting and the 2009 Shareholders’ 

Agreement into account and another value if he did not. His final values 

included a 30% discount for a lack of marketability and a 20% discount 

for a lack of control. He concluded that the class A common stock and 

the class B common stock had a fair market value of $1,019 per share 

on November 18, 2010, with tax affecting and the shareholder 

agreement in effect, and that the class B shares of TBC were worth 

$1,614.71 per share without tax affecting and the shareholder 

agreement in effect.

2. Mr. Hawkins

a. Background

Mr. Hawkins of Bannister Financial in Charlotte, North Carolina, 

specializes in business valuation of closely held companies and the type 

of stock interest at issue. He holds a bachelor’s in economics from the 

University of North Carolina at Chapel Hill and a master’s in business

administration from Wake Forest University. He is an accredited senior 

appraiser in business valuation and a chartered financial analyst.

b. Capitalization of Net Cashflow

Mr. Hawkins valued the subject stock using the income 

approach’s capitalization of net cashflow method. This method 
19

[*19] measures the dividend or distribution paying capacity of the 

company being valued by applying an appropriate capitalization rate 

that incorporates the investor’s required rates of return for risk and a 

factor for future growth in earnings (or net cashflow). He ascertained 

that TBC has a net cashflow of $1,162.60 and a capitalization rate of 

0.107. Dividing the net cashflow by the capitalization rate rendered a 

preliminary value of equity of $10,865.40 as if TBC was a C corporation.

Mr. Hawkins then tax affected the preliminary value using the 

S Corporation Economic Adjustment Model (SEAM). The SEAM values 

the S corporation’s shares as if the S corporation paid the same level of 

taxes as a C corporation. He used TBC’s dividend/distribution payout 

ratio, the taxes that would be paid on its income, dividends, and any 

capital gains on shares to calculate the difference in the net tax benefit 

realized by the company as a C corporation and as an S corporation. He 

ascertained that there would be a 24.6% greater after tax benefit of an 

S corporation in these cases. He tax affected what he had ascertained 

was the preliminary value of equity by a rate of 24.6% to arrive at an 

adjusted S corporation value of common equity of $13,638.30. After 

dividing the adjusted S corporation value of common equity by the 

number of outstanding shares, he arrived at a preliminary fair market 

value per share of $1,353.83.

c. GPC

Mr. Hawkins also used the market approach’s GPC method to 

value the subject shares. He used Cedar Fair, L.P. (Cedar Fair), as a 

comparable company because theme parks are a competitor of TBC and 

it is similarly aligned with the services offered. Cedar Fair operates in 

the United States 11 amusement parks, 6 water parks, and 5 hotels. Of 

Cedar Fair’s total 2009 revenues, 58.2% came from admissions, 34.5% 

from food, drink, and games, and the remaining 7.3% from 

accommodation and other. He viewed these percentages as similar to 

TBC’s 2009 revenues from admissions, restaurants and merchandise, 

and from all other sources, respectively.

After comparing the size, profitability, return on equity, growth 

trends, business opportunities, diversification, financial strength, and 

distributions of Cedar Fair and TBC, Mr. Hawkins selected the Market 

Value of Invested Company to Earnings Before Income Taxes, 

Depreciation, and Amortization (MVIC/EBITDA) value multiple. He 

applied the MVIC/EBITDA value multiple to two time frames: (1) the 

EBITDA of the trailing 12 months (TTM) of the valuation date and 
20

[*20] (2) the median of 2006 to TTM. He applied the multiples to TBC’s 

adjusted EBITDA to arrive at the preliminary values of $1,508.10 and 

$1,661.53.

He applied a 25% discount for a lack of marketability and a 2% 

discount for a lack of voting rights to the GPC method. He concluded 

that the applicable fair market value of the class A common stock was 

$1,131 per share and that the applicable fair market value of the class B 

common stock was $1,108 per share.

d. Asset-Based Valuation

Mr. Hawkins chose not to value the subject stock on the basis of 

TBC’s assets because he was valuing a minority issue with no power to 

force a liquidation. He rationalized that TBC’s shareholders would not 

liquidate given that TBC had survived through four generations of the 

family of Cornelia Cecil and was the subject of the 2009 Shareholders’ 

Agreement. He concluded that a willing buyer with knowledge of these 

facts would assume that it was too speculative to believe that he or she 

would realize anything significant from the underlying assets.

C. Respondent’s Experts

Respondent’s experts are Gretchen Wolf and Robert Morrison.

1. Ms. Wolf

Ms. Wolf appraises art for the IRS Office of Art Appraiser 

Services. She has a certification in appraisal studies for fine and 

decorative arts from George Washington University and attended 

programs at the University of Virginia’s Rare Book School and 

Georgetown University for continuing coursework in rare books and fine 

arts. She has completed valuation training with the American Society 

of Appraisers.

Ms. Wolf valued the five aforementioned works of art owned by 

TBC using the market comparison approach. She looked at comparable 

sales that had taken place in high-end auction houses and the retail

market where private sales take place. She did not value the artwork 

using the income approach because the artwork has little income-
21

[*21] producing value to TBC. She appraised the artwork at a total of 

$13,250,000 as of November 19, 2010.5

2. Mr. Morrison

a. Background

Mr. Morrison works for Morrison Valuation and Forensic Services 

as a forensic accountant and business appraiser. He has a bachelor’s of 

science in finance from Miami University (Ohio) and a master’s in 

business administration from the University of Central Florida. He has 

an accredited senior appraisers certification and an intangible asset 

certification.

b. NAVM

Mr. Morrison appraised the subject stock using the asset-based 

approach’s net asset value method (NAVM). The general premise of the 

NAVM is that value equals the sum of the market values of all assets, 

including those assets which may not be recorded on the company’s 

balance sheet, less the share of the market values of liabilities. He 

applied the NAVM in two steps. First, he identified all assets and 

liabilities of TBC regardless of whether they were recorded on the 

balance sheet and ascertained the fair market value of the assets and 

liabilities identified. Second, he ascertained an appropriate adjustment 

to reflect the noncontrolling nature of the subject stock.

TBC’s reported assets were $53,580,000 and its liabilities were 

$33,349,000 on November 30, 2010. The difference of $20,231,000 is the 

net asset value (NAV) before adjustments. Mr. Morrison made two types 

of adjustments: reclassification adjustments (which do not affect the 

NAV) and valuation adjustments. He made the following valuation 

adjustments.

Real Estate. Mr. Morrison relied on a real estate appraisal report 

prepared by Ducksworth, Jacobs, Naeger, Swicegood & Thrash, LLC 

(Duckworth Appraisal). The effective date of the Duckworth Appraisal 

is December 31, 2009, almost 11 months before the valuation date. 

During those 11 months, the value of agricultural land in North 

Carolina declined approximately 2%. Mr. Morrison adjusted the 

Duckworth Appraisal downward by 2% which resulted in a real estate 

5As indicated infra p. 22, Mr. Morrison, in taking into account TBC’s collectible 

portfolio, relied on Ms. Wolf’s appraisal. 
22

[*22] value of $95,922,000. This resulted in an increase of $71,652,000

to his NAV.

Collectible Portfolio. Mr. Morrison took into account TBC’s 

portfolio of fine art, antiques, and other collectibles. He relied on an 

appraisal report from Christie’s Appraisal, Inc., which estimated that 

those items had a total fair market value of $37,947,000 on 

December 31, 2009 (Christie’s Appraisal). The appraisal was later 

supplemented to include additional collectibles valued at $3,474,000

(Christie’s Supplement). He also relied on Ms. Wolf’s appraisal. His 

combining the Christie’s Appraisal value (unadjusted for Ms. Wolf’s 

appraisal value) with the Christie’s Supplement value resulted in a total 

value of $41,421,000 for TBC’s collection. This resulted in an increase 

of $41,421,000 to his NAV.

Installment Note Receivable. TBC reported on its balance sheet 

that the installment note that it received in the West Range 

sale/leaseback transaction had a value of $554,000, the amount deferred 

on the gain. Mr. Morrison adjusted the value of the note to $2,700,000, 

the amount of the remaining payments. This resulted in an increase of 

$2,146,000 to his NAV.

Trademarks and Trade Name. Mr. Morrison employed the Relief 

from Royalty Method (RFRM) to value TBC’s trademarks and trade 

name. The premise of the RFRM is that the value of the asset is equal 

to the present value of future royalties to license and use the asset as if 

it did not own the asset (hence, relief from royalty). Using the RFRM, 

he estimated the value of TBC’s trademarks and trade name was 

$9,514,000. This resulted in an increase of $9,514,000 to his NAV.

Workforce-in-Place. Mr. Morrison estimated that TBC had 1,700 

workers in place and rationalized that, while many of these workers 

were unskilled, hourly employees, the assemblage of this workforce-inplace had value. He ascertained the value using the replacement cost 

method (RCM). The premise of the RCM is that the value today equals 

the cost to reproduce/replicate the asset. He ascertained that the value 

of the workforce-in-place was $1,624,000. This resulted in an increase 

of $1,624,000 to his NAV.

After he made the valuation adjustments, the NAV was 

$146,587,000. The NAVM assumes a marketable, liquid, and 

controlling interest whereas the subject stock is nonmarketable, illiquid, 

and noncontrolling. To adjust for this, Mr. Morrison looked in markets 
23

[*23] for noncontrolling interests and chose real estate limited 

partnerships (RELP) and closed-end funds (CEF). He rationalized that 

his observed prices to NAV (P/NAV) of RELPs and CEFs that held assets 

similar to TBC’s provided some guidance as to a proper adjustment. For 

purposes of this analysis, he considered all of the operating assets 

(excluding real estate) as a portfolio of assets, then considered each asset 

individually. After he estimated the P/NAV of RELPs and CEFs, the 

value indicated by the NAVM is $92 million on a noncontrolling but 

marketable and liquid basis.

c. DFBM

Mr. Morrison also valued the subject stock using the income 

approach’s discounted future benefits method (DFBM). The DFBM 

values a company at the present value of expected future periodic 

income benefit stream during a discrete time plus residual value at the 

end of the period and discounts for the relative risk of expected future 

returns. He employed the following seven steps to ascertain value under 

the DFBM: (1) selected the benefit stream to be used; (2) projected the 

future annual benefit streams until the company reaches stabilization; 

(3) estimated the residual or terminal value of the company at the end 

of the discrete projection period; (4) estimated an appropriate discount 

rate for the company that compensates both the equity holders and the 

debt holders of the company and a stabilized long-term rate of growth; 

(5) discounted all future benefit streams, including the residual value, 

to present value; (6) adjusted, as appropriate, for nonoperating assets 

and/or liabilities; and (7) applied any necessary valuation adjustment.

Mr. Morrison chose an after-tax net cashflow to equity (NCF) 

benefit stream because the data used to develop capitalization rates and 

discount rates are based on after-tax cashflows. After projecting the 

future annual benefit streams, he used the single-period capitalization 

model (SPCM) to estimate the residual or terminal value. He opined 

that the premise of the SPCM is that the stabilized NCF at the end of 

the discrete projection period will grow into perpetuity at some 

stabilized level of annual growth. He ascertained that the terminal 

value as of the end of the discrete period is determined by capitalizing 

that stabilized NCF; and by using a growth rate of 3%, he ascertained 

that the stabilized benefit stream of the last year of the discrete 

projection period was $1,773,000. He used a 16% cost of equity as his 

discount rate. After discounting the future benefits streams, the sum of 

all present values of all cashflows is $12,931,000. Because TBC is an S 

corporation, Mr. Morrison used the SEAM method to tax affect at a 
24

[*24] premium of 17.6%. He next added the values for various 

nonoperating assets. Using the DFBM, he reached a value of $36

million.

d. Reconciliation of Two Approaches

In reconciling his two approaches, Mr. Morrison concluded that 

the P/NAVs may not actually reflect TBC’s circumstances because TBC, 

contrary to RELPs and CEFs, does not seek to maximize its assets. He 

also recognized that the DFBM is superior but chose to incorporate the 

NAVM into his final evaluation. Ultimately, he assigned a 90% weight 

to the DFBM and assigned a 10% weight to the NAVM. He also 

ascertained and took into account discounts for a lack of marketability 

of 19% for the class A common stock, 22% for the smaller block of class

B common stock, and 27% for the larger block of class B common stock. 

His resulting values were $4,000 per share for the class A common stock, 

$3,066 per share for the 2,334.25 larger block of class B common stock, 

and $3,276 per share for the 1,556.16 2/3 smaller block of class B 

common stock.

D. Summary

Below is a summary of the fair market values ascertained by each 

expert less Ms. Wolf (three relevant experts):

Class of Stock Adams Hawkins Morrison

Class A Common $1,019.00

(with tax 

affecting)

$1,131

(with tax 

affecting)

$4,000

(with tax 

affecting)

Class B Common

(Smaller Block)

1,019.00

(with tax 

affecting)

1,614.71

(without tax 

affecting)

1,108

(with tax 

affecting)

3,276

(with tax 

affecting)

Class B Common 

(Larger Block)

1,019.00

(with tax 

affecting)

1,614.71

(without tax 

affecting)

1,108

(with tax 

affecting)

3,066

(with tax 

affecting)
25

[*25] IV. Tax Affecting

With the exception of Ms. Wolf, whose appraisal was limited to 

the five pieces of artwork, all experts agree that “tax affecting” must be 

considered to ascertain the fair market value of the subject stock 

because an S corporation such as TBC, unlike a C corporation, generally 

does not pay income tax. Where, as here, the data used to value an 

S corporation are largely based on the data from C corporations, 

proponents of tax affecting believe that the mismatch from pretax 

cashflows and after-tax discount rates must be adjusted through tax 

affecting to ascertain the fair market value of the S corporation. See 

Dallas v. Commissioner, T.C. Memo. 2006-212, slip op. at 7 n.3 (stating 

that “in the context of valuation of stock of an S corporation, ‘tax 

affecting’ is the discounting of estimated future corporate earnings on 

the basis of assumed future tax burdens imposed on those earnings, such 

as from the loss of S corporation status and imposition of corporate-level 

tax”). 

In Gross v. Commissioner, T.C. Memo. 1999-254, aff’d, 272 F.3d 

333 (6th Cir. 2001), we held that tax affecting was improper in valuing 

an S corporation. There, the taxpayer sought tax affecting and the 

Commissioner argued against it. We held that “[a]s a theoretical matter, 

we do not believe that ‘tax-affecting’ an S corporation’s projected 

earnings is an appropriate measure to offset that potential burden 

associated with S corporations.” Id. slip op. at 24. We concluded that 

the principal benefit that shareholders expect from an 

S corporation election is a reduction in the total tax burden 

imposed on the enterprise. The owners expect to save 

money, and we see no reason why that savings ought to be 

ignored as a matter of course in valuing the S corporation. 

Id. slip op. at 27. 

We continued to reject applying tax affecting to determine an 

S corporation’s fair market value. See Estate of Gallagher v. 

Commissioner, T.C. Memo. 2011-148, slip op. at 32, supplemented by

T.C. Memo. 2011-244 (finding tax affecting not appropriate where 

appraiser failed to explain his reasoning for tax affecting); Dallas, T.C. 

Memo. 2006-212 (finding tax affecting not appropriate when the 

taxpayer presumed that an S corporation would lose its S corporation 

status after a sale); Wall v. Commissioner, T.C. Memo. 2001-75, slip op. 

at 27 n.19 (“[T]ax-effecting an S corporation’s income, and then 
26

[*26] determining the value of that income by reference to the rates of 

return on taxable investments, means that an appraisal will give no 

value to S corporation status.”); see also Estate of Giustina v. 

Commissioner, 586 F. App’x 417 (9th Cir. 2014), rev’g and remanding

T.C. Memo. 2011-141.

In Estate of Jones, T.C. Memo. 2019-101, however, we concluded 

that tax affecting was appropriate in that setting. There, the parties 

agreed that a hypothetical buyer and seller would take into account the 

entity’s business form when determining the value of a limited partner 

interest; they simply disagreed on how to account for it. The 

Commissioner argued that a zero percent tax rate should apply. The 

Commissioner disagreed with his experts, who were largely silent except 

to point out that the taxpayer’s tax affecting was improper, not because 

the business paid entity level tax, but because the nature of the business 

meant that its rates of return were closer to the property rates of tax. 

Thus, we did “not have a fight between valuation experts but a fight 

between lawyers.” Id. at *39.

Most recently, in Estate of Jackson v. Commissioner, T.C. Memo. 

2021-48, we did not find tax affecting appropriate. There, all of the 

estate’s experts agreed that the buyer would be a C corporation and that 

the value should be tax affected to account for the tax liability of the 

C corporation. Each expert, however, used a different tax rate. The 

Commissioner’s experts strongly disagreed that tax affecting was 

appropriate. We distinguished Estate of Jones by noting that Estate of 

Jones was a situation where the experts agreed to take into account the 

form of the business entity and agreed on the entity type. We held that 

tax affecting would not be appropriate because the estate’s experts had 

not persuaded us that the buyers would be C corporations. Id. at *82. 

We also stated, though, that 

[w]e do not hold that tax affecting is never called for. But 

our cases show how difficult a factual issue it is to 

demonstrate even a reasonable approximation of what that 

effect would be. In Estate of Jones, there was expert 

evidence on only one side of the question, and that made a 

difference. 

Id. at *82–83. 

Here, experts on both sides agree that tax affecting is necessary 

to value the subject stock. Messrs. Morrison and Hawkins also agree 
27

[*27] that the SEAM method is the appropriate method to employ in the 

setting at hand to account for tax affecting and that a factor of at least 

17.6% applies here for that purpose. As we observed in Estate of 

Jackson, there is not a total bar against the use of tax affecting when 

the circumstances call for it. Now given that each side’s experts (with 

the exception of Ms. Wolf who did not opine on this point) totally agree 

that tax affecting should be taken into account to value the subject stock, 

and experts on both sides agree on the specific method that we should 

employ to take that principle into account, we conclude that the 

circumstances of these cases require our application of tax affecting. 

While Messrs. Morrison and Hawkins do not agree on the specific rate 

that applies here to implement tax affecting (Mr. Hawkins determined 

the rate to be 24.6% while Mr. Morrison determined the rate to be 

17.6%), we consider it appropriate on the basis of the record (and relying

on Mr. Morrison’s opinion in this regard) to set that rate at 17.6%. We 

emphasize, however, that while we are applying tax affecting here, given 

the unique setting at hand, we are not necessarily holding that tax 

affecting is always, or even more often than not, a proper consideration 

for valuing an S corporation.

V. Our Impression of the Experts

A. Mr. Morrison

We are unpersuaded by Mr. Morrison’s opinion on the fair market 

value of the subject stock. In that TBC is an operating company whose 

existence does not appear to be in jeopardy, and not a holding company, 

we believe that TBC’s earnings rather than its assets are the best 

measure of the subject stock’s fair market value. See Estate of Ford v. 

Commissioner, T.C. Memo. 1993-580, 1993 Tax Ct. Memo LEXIS 595, 

at *14 (1993) (“[P]rimary consideration is generally given to earnings in 

valuing the stock of an operating company, while asset values are 

generally accorded the greatest weight in valuing the stock of a holding 

company.”), aff’d, 53 F.3d 924 (8th Cir. 1995). 

Mr. Morrison’s reliance on the asset-based approach also appears 

to be inconsistent with the Uniform Standards of Professional Appraisal 

Practice (USPAP). USPAP Standards Rule 9-3 states: 

In developing an appraisal of an equity interest in a 

business enterprise with the ability to cause liquidation, an 

appraiser must investigate the possibility that the 

business enterprise may have a higher value by liquidation 
28

of all or a part of the enterprise . . . . However, this typically 

applies only when the business equity being appraised is in 

a position to cause liquidation.

That is not the setting here. The liquidation of TBC is most 

unlikely (if likely at all) in that a hypothetical buyer and seller would 

need to (1) acquire additional shares in order to cause TBC’s liquidation; 

(2) convince other shareholders to vote for a liquidation; or (3) wait until 

the shareholders or their heirs decide to liquidate TBC, and we consider 

each of these three events unlikely to occur. Bill Cecil, Dini Pickering, 

Chase Pickering, Aubrey Cecil, and Ryan Cecil all credibly testified that 

they had no intention of selling their TBC stock or liquidating TBC, and 

we find that testimony as a fact. In so doing, we decline respondent’s 

request to disregard that testimony as self-serving. The mere fact that 

a witness’s testimony may serve his or her interests does not necessarily 

mean that we will disregard that testimony as untrustworthy. See, e.g.,

Diaz v. Commissioner, 58 T.C. 560, 564 (1972). Our acceptance of their 

credible “self-serving” testimony is even more appropriate here, where 

documentary and other evidence supports that testimony. The 2009 

Shareholders’ Agreement and the 1999 Voting Trust sufficiently 

established that petitioners, their children, and their grandchildren 

aspired to keep TBC in their family by restricting the transfer of stock 

outside of the family. We also understand the family’s holding of the 

annual meetings to serve strategically to minimize and control business 

disputes that could occur within the family, to obviate any TBC 

shareholder’s rogue attempt to sell his or her TBC shares to an outsider, 

and to make most unlikely any breakup of TBC similar to the breakup 

effected by Mr. Cecil and his brother in 1979. These meetings also serve 

to groom TBC’s shareholders to manage TBC as a family asset. The fact 

that TBC has been in the family since its incorporation in 1932 also 

speaks loudly to the fact that the Cecil and the Pickering families are 

committed to maintaining TBC as a family business.

We assign zero weight to Mr. Morrison’s valuation opinion.

B. Mr. Hawkins

We also have concerns with the thrust of Mr. Hawkins’s valuation 

opinion. In using the GPC method to value the subject stock, he relied 

on a single company, Cedar Fair. We have previously held that it is 

inconceivable that a hypothetical buyer would consider only a single 

alternative comparable. See Estate of Hall v. Commissioner, 92 T.C. 312, 

339–40 (1989). Although Cedar Fair does operate competitors of TBC, 

[*28]
29

[*29] the lack of multiple comparable companies renders his GPC 

appraisal suspect. Furthermore, TBC lacks the traditional features of 

its competitors such as diversification. Cedar Fair is larger, more 

diversified, and more profitable than TBC.

Nor did we view Mr. Hawkins during his trial testimony to 

express much confidence in his GPC analysis. He acknowledged that 

Cedar Fair operates at a national level while TBC operates at a regional 

level. He acknowledged that Cedar Fair’s 2009 admissions revenue is 

significantly greater than TBC’s 2009 admissions revenue. He 

acknowledged that Cedar Fair’s 2009 pretax profit was significantly 

greater than TBC’s 2009 pretax profit. While multiples could be found 

that would have made Cedar Fair more comparable, the fact that Cedar 

Fair is the only comparable company Mr. Hawkins used and that it is so 

different renders questionable his decision to give the GPC method a 

50% weight.

We also find fault with Mr. Hawkins’s application of the 

capitalization of net cashflow method. In his calculations, he used TBC’s 

median 2006 to TTM 2010 EBT. Between 2007 and 2009, the United 

States and much of the world experienced the Great Recession, the worst 

economic downturn since the Great Depression. Given the timing of the 

Great Recession and TBC’s loss for 2008, the only year since 1995 that 

TBC had realized a loss, we consider the 2008 loss to be an aberration 

in TBC’s financial operations and do not think it was appropriate for Mr. 

Hawkins to have included TBC’s 2008 financial information in his 

analysis. While we recognize that his use of the median rather than the 

average helps mitigate the distortion caused by the Great Recession, the 

distortion is large enough that it renders his analysis on this point 

unpersuasive.

C. Mr. Adams

Mr. Adams’s application of the GPC and similar transactions 

methods also has flaws. In his GPC valuation, he found five comparable 

companies. Two of those companies are not comparable at all. TBC is 

in the business of historic hospitality. Its guests enjoy retail shopping, 

restaurants, and various outdoor activities in an environment 

reminiscent of the Gilded Age. While Peak Resorts, Inc., Vail Resorts,

Inc., and Whistler Blackcomb Holdings, Inc., operate resorts that 

similarly offer various outdoor activities in the hospitality business, the 

same is not true as to Pairi Daiza SA and Premier Exhibitions, Inc. The 

former operates a park which houses thousands of animals, and it does 
30

[*30] so at a location (in Belgium) that is vastly different from western 

North Carolina. The latter presents museum exhibitions outside of the 

hospitality industry and does that worldwide while TBC’s operation is 

limited to a single city, Asheville, and the surrounding area.

With regard to Mr. Adams’s similar transactions valuation, two 

of the six transactions occurred during the Great Recession. American 

Golf Corp. was acquired on October 29, 2008, and Sydney Attractions

Group, Pty Ltd., was acquired on February 29, 2008, and we find it most 

likely that the Great Recession affected the purchase prices in those two 

transactions. We also add that American Golf Corp. and Sydney 

Attractions Group, Pty Ltd., are not in the same hospitality industry as 

TBC. The former owns and operates golf courses. The latter primarily 

operates the Sydney Aquarium. We fault Mr. Adams for including those 

two transaction in his analysis.

Notwithstanding the flaws in Mr. Adams’s applications of the 

GPC and similar transactions methods, however, we do not find those 

flaws to be fatal to his overall opinion. It is abundantly clear that TBC 

is a unique company and finding an exact match would be near to 

impossible. We consider it noteworthy that Mr. Adams assigned only a 

25% weight to each method, which as we see it, adds a degree of 

reliability to his application of the GPC and similar transactions 

method.

Most importantly, the thrust of his overall opinion is his 

application of the DCF method, an application with which we find no 

fault. Indeed, on brief, respondent urges us to adopt Mr. Adams’s

valuation based on his DCF analysis with one correction. After 

determining the MVIC, Mr. Adams added back the value of TBC’s 

nonoperating asset, which was TBC’s excess debt-free working capital. 

Respondent contends that the installment note from the West Range 

transaction, accounts receivable from the shareholders, and Busbee 

Mountain were nonoperating assets whose value should also be added 

back. We disagree. Mr. Adams included the excess debt-free working 

capital because it added value to the TBC stock in that TBC funds would 

be available for distribution to the shareholders at the end of the year. 

TBC’s underlying assets did not add any value to the TBC stock.

D. Conclusion

We find flaws with Mr. Hawkins’s and Mr. Morrison’s analyses 

that lead us to disregard the thrust of their opinions on the fair market 
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[*31] value of the subject stock. While there are issues with Mr. 

Adams’s application of the GPC and similar transactions methods, we 

find that his valuation (exclusive of the discounts discussed below), with 

one adjustment, is the truest value of the subject stock’s prediscount fair 

market value. The single adjustment, as discussed above, is that tax 

affecting should be reflected at a rate of 17.6%.

VI. Applicable Discounts

A. Discount for a Lack of Control

Mr. Adams applied a discount for a lack of control to the similar 

transactions method because, he surmised, a prudent investor would not 

pay full value for a noncontrolling interest. TBC’s owners also made no 

effort to sell TBC in the marketplace and had previously rejected 

overtures to sell TBC. Mr. Adams reviewed publicly announced 

transactions of noncontrolling interests and arrived at a 20% discount 

for a lack of control.

Mr. Morrison looked at various RELPs and CEFs, which often 

trade at discounts for a lack of control, and arrived at a 38% discount. 

We disagree with Mr. Morrison’s discount because his analysis focused 

on businesses holding investments rather than on operating companies 

like TBC. We accept Mr. Adams’s discount rate of 20% for a lack of 

control.

B. Discount for a Lack of Voting Rights

Mr. Hawkins applied a 2% discount in valuing the class B 

common stock because, he concluded, that stock lacked voting rights. 

That conclusion is not totally accurate in that class B shareholders can 

vote in limited circumstances. Mr. Hawkins also misrelied on two 

studies which analyzed data from 1994 and 1999. Those data are too 

old. Furthermore, in arriving at their values, each of the three relevant 

experts already accounted for the fact that he was valuing a nonvoting 

minority interest. We decline to apply a discount for a lack of voting 

rights.

C. Discount for a Lack of Marketability

Each of the three relevant experts applied a discount for a lack of 

marketability because the shares are not registered for public sale or 

sold on public markets. Mr. Adams applied a discount rate of 30% to 

each method he used. Mr. Hawkins applied a 25% discount rate. Mr. 
32

[*32] Morrison applied a discount rate of 19% to the class A common 

stock, of 22% for the smaller block of class B common stock, and of 27% 

for the larger block of class B common stock.

In arriving at his discount rate, Mr. Adams looked at studies of 

the sales of temporarily restricted shares of otherwise publicly traded 

companies (letter stock) and sales of closely held companies before 

subsequent initial public offerings (IPO). He also conducted a put option 

analysis. We are not sold on that process. The studies that Mr. Adams 

relies on analyze data that are too old, e.g., the latest study looks at data 

from 1969 to 1992, and most of the studies look at data from the 1970s 

and 1980s. He also admits that the pre-IPO studies are unreliable and 

may overestimate or underestimate actual marketability discounts. 

And as for his put option analysis, which produced a range of discount 

rates from 11.6% to 22.6%, we cannot fathom how that analysis supports 

his final discount rate of 30%.

We turn to the discount rates ascertained by Mr. Hawkins and 

Mr. Morrison. We conclude that the appropriate discount rates are the 

three rates that Mr. Morrison ascertained. It is logical for us to conclude 

that the smaller blocks of class B common stock would be more easily 

marketed than the larger blocks of the class B common stock. We also 

agree with Mr. Morrison that different discount rates should apply to 

the two classes of stock because the voting rights that attach to the class

A stock should make that class of stock more marketable than the class

B common stock.

VII. Conclusion

We accept the valuation reached by Mr. Adams before he took into 

account any tax affecting and before he applied any discounts. We 

accept Mr. Adams’s 20% discount for a lack of control and Mr. Morrison’s 

discount rates of 19%, 22%, and 27% for a lack of marketability.

We have considered all of the arguments made by the parties and, 

to the extent they are not addressed herein, we find them to be moot, 

irrelevant, or without merit.

To reflect the foregoing,

Decisions will be entered under Rule 155.