Opinion ID: 2604259
Heading Depth: 1
Heading Rank: 31

Heading: The Tax Court's approach

Text: The Tax Court found problems with both parties' determinations of equity value for the railroad. Schoenwald, the Tax Court felt, had backed into his appraisal value for the railroad equity by using the identical calculations [that] he used to find the discounted cash flow indication of value. This dilutes the value of the stock and debt approach. 11 OTR at 186. The Tax Court also was critical of the way in which Schoenwald had handled the question of how to value Champlin Petroleum for the purposes of deducting it from the gross value of UPC. The Tax Court also had what it called some basic criticisms of the Department's stock and debt calculations. The calculations were very much the same as those used by the Department in its direct capitalization approach to the income indicator of value and had some of the same flaws and defects that the Tax Court had noted concerning that indicator. Moreover, the results of the two case calculations were sufficiently at odds with each other and with the demonstrable value of UPC's outstanding common stock to undermine seriously the persuasiveness of the calculations. The court also seemed unimpressed with the Department's use of income-influence and asset-influence methods to separate out nonrail assets, a process that we need not explain more fully here. Having offered the foregoing criticisms, the Tax Court seems to have chosen not to use either party's values under this approach. The court did, in its opinion, make it clear that it felt that UP's valuation undervalued the railroad assets. On the other hand, the court stated: [T]he court has also found errors, with [UP]'s assistance, in [the Department]'s estimate of values. This requires adjusting [the Department]'s estimated market value of the total Union Pacific Railroad system. Id. at 189. The Tax Court did not define what adjustments it made, however. It simply announced its ultimate conclusions as to value.