Opinion ID: 77120
Heading Depth: 3
Heading Rank: 2

Heading: The Comparability Requirement

Text: 24 The Tax Court, reasoning in the alternative, completed the I.R.C. § 2703(b) analysis. It observed that the first two prongs of the test were not at issue. Whether the Taxpayer proved that the agreement was comparable to similar arrangements entered into at arm's length was examined. Similar arrangements are those that could have been obtained in a fair bargain among unrelated parties in the same business dealing with each other at arm's length, where a fair bargain is one that conforms to with the general practice of unrelated parties under negotiated agreements in the same business. Treas. Reg. § 25.2703-1(b)(4)(i). 25 The Tax Court observed that Grizzle, the Taxpayer's witness on the issue of comparability, established that the basis of his comparison was the sale/purchase prices of similarly situated businesses. The court reviewed Grizzle's testimony for an indication that he considered noneconomic factors that would lead to truly comparable transactions, but found none. The court noted from the outset that Grizzle did not factor anything other than price into his equation of comparability. Estate of Blount, 87 T.C.M. at 1315. 26 The court concluded that Grizzle's estimate of BCC's fair market value was erroneous because he used only a cash flow-based calculation and failed to account for $1.9 in liquid assets, and, as a result, he valued BCC at $2 million less than other experts on the issue of fair market value. The Tax Court rejected Grizzle's conclusion that industry values were comparable and concluded that the agreement price was not sufficiently close the other experts' determinations for the agreement to satisfy the statutory comparability exception. Based upon the record before us, we find no error with the Tax Court's conclusion. Because the stock-purchase agreement did not establish the value of the stock for tax purposes, the Tax Court properly concluded that it must establish the fair market value of BCC, on the record before it, in order to discern the value of the Taxpayer's interest.