The Decedent in this case owned a 23.44% interest in a family holding company, Person Holding Co. ("PHC"). PHC's assets consisted of publicly traded securities. Decedent was one of the three largest shareholders.

In the years before Decedent's death, PHC followed a philosophy of maximizing dividend income. It paid dividends reliably at a rate that had grown slightly more than 5% per year in the years from 1970 to 2005.

The estate engaged an accounting firm to value Decedent's PHC stock. The accountant, who was not a certified appraiser, used the capitalization-of-dividends method and provided an unsigned draft of the valuation report. The estate never asked him to finalize the report and used the unsigned draft on the Estate Tax Return.

The Court stated that the theory behind the income capitalization valuation method is that if an asset produces a predictable income stream, its value can be ascertained by calculating the present value of the future income stream. The Court further noted that such method is entirely appropriate where a company's assets are difficult to value, but not appropriate in the present case because the method ignored the most reliable data of value, i.e., the actual market prices of PHC's publicly traded securities.

The Court thus rejected the estate's value and upheld a large valuation misstatement penalty, finding that the estate failed to demonstrate good faith or reasonable cause for its low value. The Court was particularly concerned in this regard that the estate did not hire a qualified appraiser.