Court Opinion

ID: 4338863
Source: CourtListenerOpinion
Date Created: 2018-11-14 04:07:03.110426+00
Date Added: 2024-06-11T14:05:57.214585
License: Public Domain

ESTATE OF LOUISE PAXTON GALLAGHER, DECEASED, F. GORDON SPOOR, PERSONAL REPRESENTATIVE, Petitioner v. COMMISSIONER OF INTERNAL REVENUE, Respondent *Estate of Gallagher v. Comm'rDocket No. 16853-08United States Tax CourtT.C. Memo 2011-244; 2011 Tax Ct. Memo LEXIS 240; 102 T.C.M. (CCH) 388; October 11, 2011, FiledEstate of Gallagher v. Comm'r, T.C. Memo 2011-148">T.C. Memo 2011-148, 2011 Tax Ct. Memo LEXIS 150">2011 Tax Ct. Memo LEXIS 150 (T.C., 2011)*240 Decision will be entered under Rule 155, Tax Court Rules of Practice and Procedure.James R. Spoor and Jon M. Wilson, for petitioner.Stephen R. Takeuchi and Robert W. Dillard, for respondent.HALPERN, Judge.HALPERNSUPPLEMENTAL MEMORANDUM OPINIONHALPERN, Judge: Our Memorandum Findings of Fact and Opinion in this case was reported as Estate of Gallagher v. Commissioner, T.C. Memo. 2011-148. We issue this supplemental opinion to correct an error in our computation of the value of 3,970 membership interests (units) in Paxton Media Group, LLC, a Kentucky limited liability company included in Louise Paxton Gallagher's gross estate.In the appendix to our original report, we calculated the value of the 3,970 units to be $32,601,640 by using a discounted cashflow analysis. We computed the total present value of expected cashflows for 5 years and added to that sum the present value of a reversion, which we assumed to be received at the end of the fifth year. In computing the present value of the reversion, we erred in using the present value factor "(1 + 0.1)6". To determine the present value of the reversion to be received at the end of the fifth year, the value of the exponent in the present *241 value factor should have been 5, not 6. We have attached hereto a new appendix in which we have revised our computation of the value of the 3,970 units, using the corrected present value factor and determining a value for the units of $35,761,760 (an increase of $3,160,120), which we find to be the value of the 3,970 units (the shares) as of the valuation date.Decision will be entered under Rule 155, Tax Court Rules of Practice and Procedure.Valuation of 3,970 Units of Paxton Media Group, LLC as of July 5, 2004Projected ItemsLTM * ended June 27, 2004Year 1Year 2Revenue$163,602,288$172,514,890$175,102,613Operating income62,795,42063,737,351(@ 36.4% op. margin)Other income (expense)172,515175,103(@ 0.1% of revenue)Adjusted operating income62,967,93563,912,454Cashflow adjustments+ Depreciation5,347,9625,428,181(3.1% of revenue)(-) Working capital additions222,81564,693(-2.5% of revenue)(-) Capital expenditures(4,830,417)(4,902,873)(2.8% of revenue)Yearend cashflow63,708,29564,502,455Discount rate (WACC)10%10%Present value interest factor (1 / (1.1) n)0.90910.8265Present value of cashflows57,917,21153,311,279Total present value of cashflows$246,332,859(year 1 - year 5)Present value of reversion:462,981,42566,434,946 (1.01 / (0.1 - 0.01)) / ((1 + 0.1)5)Total present value of all future cashflows709,314,284Long-term debt(243,602,413)Enterprise value of PMG (w/o discount)465,711,871Value less in-the-money value of options1448,290,271Value with 23% minority discount345,183,509Value with 31% lack of marketability discount238,176,621Value of each unit9,008Value of 3,970 units35,761,760* Last 12 months1($9,008-$2,786) x $2,800 = $17,421,600Valuation of 3,970 Units of Paxton Media Group, LLC as of July 5, 2004Projected ItemsYear 3Year 4Year 5Revenue$176,853,640$178,622,176$180,408,398Operating income64,374,72565,018,47265,668,657(@ 36.4% op. margin)Other income (expense)176,854178,622180,408(@ 0.1% of revenue)Adjusted operating income64,551,57965,197,09465,849,065Cashflow adjustments+ Depreciation5,482,4635,537,2885,592,660(3.1% of revenue)(-) Working capital additions43,77644,21344,656(-2.5% of revenue)(-) Capital expenditures(4,951,902)(5,001,421)(5,051,435)(2.8% of revenue)Yearend cashflow65,125,91665,777,17466,434,946Discount rate (WACC)10%10%10%Present value interest factor (1 / (1.1) n)0.75130.68300.6209Present value of cashflows48,929,10144,925,81041,249,458Total present value of cashflows(year 1 - year 5)Present value of reversion:66,434,946 (1.01 / (0.1 - 0.01)) / ((1 + 0.1)5)Total present value of all future cashflowsLong-term debtEnterprise value of PMG (w/o discount)Value less in-the-money value of options1Value with 23% minority discountValue with 31% lack of marketability discountValue of each unitValue of 3,970 units1($9,008-$2,786) x $2,800 = $17,421,600Footnotes*. This opinion supplements our previously filed Memorandum Opinion, Estate of Gallagher v. Commissioner, T.C. Memo. 2011-148.↩