# 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 N o s

. 14639

- 14, 14640

- 14

. Filed February 28, 2023.

—————

David D. Aughtry and John W. Hackney , for petitioner s

.

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 f ederal gift tax



### Served 02/28/232

[* 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 t he Biltmore Company (TBC) to petitioners’ five grandchildren, and Mrs. Cecil transferr ed 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, a nd 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 P etitions 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 valuat ion dates.

FINDINGS OF FACT

The parties have s tipulated some f acts, and the s tipulated f acts are so found. The S tipulation of F acts and the attached E xhibits are incorporated herein by this reference. Petitioners, now deceased, were
husband and wife dur ing all relevant times, and they resided in North
Carolina when their P etitions 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 Cec il, have three children: Ryan Jordan Vanderbilt Cecil, Aubrey Lea Amherst Cecil, and Willam Robert Vanderbilt Cecil . W e refer to these five individuals collectively as the Cecil family. Dini Pickering and her husband, George W. Pickering II, have two chi ldren: Chase Kennedy Cecil Pickering and Devon Lee Cecil Pickering . W e refer to these four individuals collectively as the Pickering family.

1 Petitioners later died and were substituted for this proceeding by their co

executor, 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 t he B iltmore 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 n é e 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 continu es 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 ch ief
executive officer. He has served in those position s 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 ba ck in time and experience the Gilded Age. Originally, TBC only offered tours of the Biltmore House and the4

[* 4 ] adj oining gardens, and the tours were considered a roadside attraction. In 1995 TBC instituted a long

- range plan to become a multiday destinat ion 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 employee s 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 cater ing facility; landscaping; ticket s and tours (including s egway 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 fisca l 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 admissio n 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 income

generating 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 rem ained in5

[* 5 ] petitioners’ extended family forever. TBC received a 30

- year installment note as payment for the sale. On the valuation dates, $2

, 7 00,000 of that note’s principal remained unpaid.

TBC owns the East Range. The East Range includes places fo r 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 a ll 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) t he Portrait of Frederick Law Olmsted by John Singer Sargent; (2) t he Waltz by Anders Zorn; (3) Mrs. George W. Vanderbi lt 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 class es of stock.

B. 1997 Amendment to Certificate of Incorporation

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

amended to re class if y TBC’s three existing class es of stock into two
class es 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 class es of stock differ only in their voting rights. The amendmen t states as to their voting rights:6

[* 6 ] C lass 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.

C lass 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

manageme nt 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 of7

[* 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 two

thirds of the Cecil family trustees and two

- thirds of the Picker ing 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 Prese rvation 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 Pre servation 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 fam ilies, 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 family

based money management. Th ese meetings and seminars were intended to prepare the next generation to take over TBC’s
management.8

[* 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

con fidentiality, 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’ Agr eement

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 requir es 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 Agreeme nt.

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 recei ve 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 m ay 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 Sha reholders’ 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 Percentage 2
C lass 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
C lass 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

2 These 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 ce rtificate 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 C lass B Common Stock

Shares Percentage 3 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 19 th day of November 20 10

. ” 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 guarant y of sufficient dividend distributions to pay that ta x.

3 These 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
receive s one vote per share, with decisions made by the majority of the votes cast. A quorum generally re quires 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 p resence 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 ma ke 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

sp li t gifts under s ection 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 inc ome 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

4 Unless 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).

T he 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 condition s 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 all ows 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. Blodge tt v. Commissioner , 394 F.3d 1030, 1039 (8th Cir. 2005), aff’g T.C. Memo.

2003

- 212; Polack v. Commissioner , 36 6 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 ; Deski ns 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 p ersonal characteristics of the actual seller or a particular buyer. Estate of Newhouse v.
Commissioner , 94 T.C. 193, 218 (1990). The valuation of stock is13

[* 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. o f 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 substantiall y 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 1 7

.

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 conse nts to that treatment.
Section 2512

, which governs the valuation of gifts

, is found in c hapter
12 of s ubtitle B of the Internal Revenue Code

, which is the chapter containing section 2513. Consistent with petitioners’ proper election to treat each gift he re 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 t o 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

gener ally “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 p ortions 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 , 39 0 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 Apprais ers. 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) met hod. 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

h e 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 by16

[* 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. Th e 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 Resort s , 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 compa ny, 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; a nd 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,
snowboard ing, 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 acti vities 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 s ize, 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 comparab le 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 enterprise17

[* 17 ] value to arrive at a 1 00% 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 b y 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 wi th 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 incl uded 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, shop ping, 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 Americ an 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

, P ty 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 c ompanies. After applying18

[* 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 3 0% 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 s tock 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 weight ed 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. 2 5

– 2 7 ), 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 Cash f low

Mr. Hawkins valued the subject stock using the income approach’s capitalizatio n of net cashflow method. This method19

[* 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 use d 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

as certained 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 equit y 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 Fa ir and T BC, 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 mon ths (TTM) of the valuation date and20

[* 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%
disco unt 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 sur vived 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
woul d 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 val uation 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 fr om 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 gen eral 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 ref lect 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 t ypes of adjustments: re class ification adjustments (which do not affect the NAV) and valuation adjustments. He made t he 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, 20 09 , almost 11 months before the valuation date. During those 11 months, the value of agricultural land in North
Carolina declin ed approximately 2%. Mr. Morrison adjusted the Duckworth Appraisal downward by 2% which resulted in a real estate

5 As indicated infra p. 2 2 , 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 T BC’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 collect i bles 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 C hristie’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

, 7 00,000

, the amount of the remaining payments. This resulted in an increase of $2

, 146 ,000 to his NAV.

Trademarks and Trade Name. Mr. Mor r ison employed the Relief from Royalty Method (RFRM) to value TBC’s trademarks and trade name. The premise of the RFRM is that th e 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 . Thi s resulted in an increase of $9

, 514 ,000 to his NAV.

Workforce

- in

- Place. Mr. Mor r ison 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

- in

pl ace 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 . Th is 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 noncontrolli ng. To adjust for this, Mr. Morrison looked in markets23

[* 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 ass ets
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 a nd 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 com pany 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 ascert ain 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 discre t e 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 va lue, 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 devel op 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 discre t e 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 discre t e period is determined by capitaliz ing
that stabilized NCF ; and by using a growth rate of 3%, he ascertained that the stabilized benefit stream of the last year of the discre t e projection period was $1

, 773 ,000 . He used a 16% cost of equity as his discount rate. After discounting the futur e benefits streams, the sum of all present value s of all cashflows is $12

, 931 ,000

. Because TBC is an S corporation, Mr. Morrison used the SEAM method to tax affect at a24

[* 24 ] premium of 17.6%. He next added the values for various nonoperating assets. Usi ng 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 a nd 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 cla ss 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):

C lass of Stock Adams Hawkins Morrison

C lass A Common $1,019 .00 (with tax affecting) $1,131 (with tax affecting) $4,000 (with tax affecting)

C lass B Common (Smaller Block) 1,019 .00 (with tax affecting)

1, 614.71 (without tax

a ffecting) 1,108 (with tax affecting) 3,276 (with tax affecting)

C lass 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 mismat ch 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 valua tion 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

- lev el 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 ignore d 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

, su pplemented 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 then26

[* 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 part ner 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 wa s 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 lawyer s

. ” 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 affect ed 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 c orporations. 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 Estat e 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 agree27

[* 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 us e of tax affecting when
the circumstances call for it

. N ow 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 expert s 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 rely ing
on Mr. Morrison ’ s opinion in thi s 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
f

or 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 as sets 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 ope rating 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 :

I n developing an appraisal of an equity interest in a business enterprise with the ability to cause liquidation, an appraiser must investigate the possibility t hat the business enterprise may have a higher value by liquidation28

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 intentio n 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 ev idence support s that testimony. The 2009 Shareholders’ Agreement and the 1999 Voting Trust sufficiently
establish ed that petitioners, their children, and their grandchildren aspire d 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 f amily 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 competitor s 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 me thod 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 200 6 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 fi nancial 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 Gre at 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 companie s. 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 does30

[* 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 t hat 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 acqu ired 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 price s in those two
transactions. We also add that American Gol f Corp. and Sydne y 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.

Notwit hstanding 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 ne ar 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 over all 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

M ountain were nonoperating a ssets 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.

T BC’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 market31

[* 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 valua tion (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%.

V I

. 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 al so 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 business es holding investments rather than on operating companies
like T BC. 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 dat a 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 unrel iable 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 t urn 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 wou ld 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 class es of stock because the voting rights that attach to the class
A stock should make th at class of stock more marketable than the class
B common stock.

VI I

. 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. Adam s ’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 with out merit.

To reflect the foregoing,

Decisions will be entered under Rule 155.