Court Opinion

ID: 9468354
Source: CourtListenerOpinion
Date Created: 2023-08-05 02:12:42.808832+00
Date Added: 2024-06-11T17:40:49.835323
License: Public Domain

ALVIN B. RUBIN, Circuit Judge,
with whom VANCE, FRANK M. JOHNSON, Jr., POLITZ and HATCHETT, Circuit Judges, join, dissenting:
It requires my brethren ten pages of manuscript to explain why they affirm the valuation for estate tax purposes of stock at an amount that is but 27% of the value that the taxpayer’s own experts placed on that stock’s pro rata share of the corporation’s “public value.” Thus, stock that, according to the bearish view of the taxpayer’s appraisers, would have a “public value” of $4.4 million is valued at $1.2 million for tax purposes.1 The estate tax law imposes a tax based on fair market value and the majority affirms a tax refund on the basis *1009of a record from which evidence relevant to the determination of that value was excluded. I, therefore, respectfully dissent from the result reached. I would remand the case so that all of the admissible evidence can be weighed.
*1008Total “public value” of stock of ETMF and Rock Companies $ 6,100,000
Total “public value” of stock of Southern Trust $ 9,910,836
Value of all stock involved $16,010,836
27.5% interest in stock passed at decedent’s death $ 4,402,970
Less:
Discount 50% for illiquidity and unmarketability of minority interest $(2,201,485)
Discount 23% to take into account term loan agreements, guarantees and pledges that affect the stock’s value $(1,012,683)
Total discounts $(3,214,168)
Net value 1,188,802
(Rounded off to $1.2 million)
Hence, the estate tax valuation is but 27% of the total public value of the decedent’s stock.
*1009Like the majority, I reject many of the government’s contentions. The time for evaluation of donated stock is the moment of transfer. Whether stock transferred either inter vivos or upon death was, before its transfer, held in community with the owner’s spouse is, of course, irrelevant to its value at the moment of transfer. So, too, is the kinship of the decedent with other stockholders.2
While my colleagues discuss at length why the value of the 27.5% interest should not be enhanced because it is part of a majority block and thus controls the corporation, they do not discuss why it should be discounted to one-half its public value because it is a minority interest. An appraisal based on “public value” of $4.4 million might be increased if control-value is considered. It does not necessarily follow that, because the control-value premium cannot be added, a subtraction because the stock represents a minority interest is correct.
The value that must be determined is the “price at which the 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.” Reg. 20.2031-l(b). This classic formulation assumes shrewd traders on both sides. Such traders would know that Mr. Bright owned 27.5% of the stock, Mr. Schiff owned 30%, and that the 27.5% available from the willing seller would give control to Bright or to Schiff or could be used to maneuver a course between them. My colleagues agree that these facts would be admissible evidence and that the facts at least “might” affect the fair market value of the 27.5% interest.
They conclude, however, that the government did not sufficiently raise the issue below. It is, of course, correct that a proffer of the additional evidence concerning what a willing seller would take and a buyer would pay was never made. In opposing the pre-trial ruling, however, the government contended that a ruling that the stock must not be valued as a portion of a control block meant that the court was imposing a discount by prehearing fiat and that this was both premature, foreclosing admissible evidence, and erroneous. It was sufficient to make the argument once. Protest is enough even if it is not strenuous, belabored, or reurged in request for reconsideration.
My colleagues conclude that the result they achieve is no gross miscarriage of justice. How they know this is a mystery. If all of the evidence had been admitted, the stock might have been appraised at $4.4 million, the pro rata share of the public value of the stock, or at more than that figure (because of the premium its bargaining position would command) or at less than that figure (because the willing buyer might think the middle bargaining position undesirable rather than desirable or might take into account the loan agreements and other encumbrances relied on by the district court). The stock might, of course, have then been valued at only $1.2 million. We can know that this valuation is not grossly unjust only if we compare it to a just result — and both the trial court and the majority have prevented the introduction of the evidence that would disclose the correctness or incorrectness of the a priori surmise that no gross injustice is being done.
Insofar as the pretrial order ruled that the stock should not be valued as part of the community, it was correct. Insofar as it went further, it was premature and it foreclosed evidence plainly admissible. Because this barrier excluded light that might have revealed the fair market value of the *1010stock and, indeed, the possible gross injustice of valuing it at 27% of its “public value,” I respectfully dissent.

. The valuation was made in the following fashion:

. The government does not, as the majority puts it, seek family attribution. However, for the reasons given by the majority in the first portion of its opinion, the tax collector’s position is unsound on any theory.