shares in the Harriett trust are included pursuant to section 2033, and FOH shares in the QTIP trust are included pursuant to section 2044. Thus, respondent contends that decedent is considered to be the owner of all of these shares outright for purposes of valuation, in which case the shares should be valued as one 55.7-percent ownership block. Respondent concludes that, because the aggregate ownership in decedent's estate represents a controlling interest in FOH, the shares should be valued at a premium rather than at a discount.

Section 2044 was added to the Code in conjunction with section 2056(b)(7) in 1981. Economic Recovery Tax Act of 1981, Pub. L. 97-34, sec. 403(d), 95 Stat. 172, 302. Under section 2056(b)(7), the decedent is entitled to a marital deduction for transfers of QTIP property to the surviving spouse at the decedent's death. The surviving spouse has a lifetime interest in the QTIP property, and, upon the death of the surviving spouse, the property passes to beneficiaries designated by the decedent. Accordingly, the first spouse to die can postpone Federal estate tax that would otherwise be due on the QTIP property while also retaining control over the ultimate disposition of it. Sec. 2056(b)(7). Inclusion in the estate of the second spouse to die, however, is the quid pro quo for allowing the marital deduction for the estate of the first spouse to die.

The purpose of section 2044 is to provide for the taxation of QTIP property upon the death of the second spouse. That section provides, in pertinent part, that "The value of the [surviving spouse's] gross estate shall include the value of property *** [for which a deduction was allowed with respect to the transfer of such property to the surviving spouse under section 2056(b)(7) and in] which the *** [surviving spouse] had a qualifying income interest for life." Sec. 2044(a). This property is "treated as property passing from the" surviving spouse, sec. 2044(c), and is taxed as part of the surviving spouse's estate at death, but QTIP property does not actually pass to or from the surviving spouse.

Respondent argues that decedent should be treated as the owner of QTIP property for valuation purposes. Respondent has identified nothing in the statute that indicates that Congress intended that result or that QTIP assets should be aggregated with other property in the estate for valuation purposes. Cf. secs. 267, 318, 544 (indicating aggregation of

interests in terms of ownership). Furthermore, at no time did decedent possess, control, or have any power of disposition over the FOH shares in the QTIP trust. Cf. secs. 2035, 2036, 2041 (requiring inclusion in the gross estate where a decedent had control over the assets at some time during her life).

Section 2044 was amended by the Technical Corrections Act of 1982, Pub. L. 97-448, sec. 104(a)(1)(B), 96 Stat. 2365, 2380. The legislative history accompanying that amendment provides no additional guidance on whether the interests involved in this case should be aggregated. Rather, "The bill clarifies that QTIP property included in a deceased donee spouse's estate is treated as passing from that spouse, for purposes of the estate tax, including the charitable and marital deductions." S. Rept. 97-592, at 20 (1982), 1983-1 C.B. 475, 483. In addition, the legislative history to the amendment does not suggest that Congress intended that section 2044 property be treated as being owned by the second spouse to die for purposes of aggregation and does not provide for aggregation with other fractional interests in the same property included in the decedent's estate under section 2033. Neither section 2044 nor the legislative history indicates that decedent should be treated as the owner of QTIP property for this purpose.

In Estate of Bonner v. United States, 84 F.3d at 198, the decedent died owning fractional shares in several pieces of real property with the remaining ownership interests being held in a QTIP trust established by his wife at her death. As provided in section 2044, the interest that was held by the QTIP trust was included in the decedent's estate. The fractional shares that were owned outright by the decedent were also included in the decedent's estate pursuant to section 2033. The executor of the decedent's estate, however, valued each interest separately with a 45-percent discount. The Government argued that the fractional interests in the real property should be aggregated for valuation purposes.

The Court of Appeals, relying on its prior holding in Estate of Bright v. United States, 658 F.2d at 1001, concluded that the fractional interests in the assets should not merge into a 100-percent fee ownership by the estate. The court stated that "the statute does not require, nor logically contemplate that in so passing, the QTIP assets would merge with other

assets." Estate of Bonner v. United States, supra at 198. The court also relied on the decedent's lack of control over the disposition of property. Id. at 198-199. The court stated:

The estate of each decedent should be required to pay taxes on those assets whose disposition that decedent directs and controls, in spite of the labyrinth of federal tax fictions. * * * Mrs. Bonner controlled the disposition of her assets, first into a trust with a life interest for Bonner and later to the objects of her largesse. The assets, although taxed as if they passed through Bonner's estate, in fact were controlled at every step by Mrs. Bonner, which a tax valuation with a fractional interest discount would reflect. At the time of Bonner's death, his estate did not have control over Mrs. Bonner's interests in the assets such that it could act as a hypothetical seller negotiating with willing buyers free of the handicaps associated with fractional undivided interests. The valuation of the assets should reflect that reality. [Id. at 199.]

Respondent also argues that, in enacting sections 2056(b)(7) and 2044, Congress did not intend to alter the estate tax consequences that would otherwise arise if a decedent had transferred property to his or her surviving spouse outright. See H. Rept. 97-201, at 160 (1981), 19812 C.B. 352, 378 ("tax laws should be neutral and * * * tax consequences should not control an individual's disposition of property"). Prior to the enactment of sections 2056(b)(7) and 2044, for the first spouse to get the full marital deduction, the decedent had to leave property to the surviving spouse outright or had to leave property to the surviving spouse in trust with a general power of appointment. In either situation, the decedent's property was aggregated with the property of the surviving spouse for valuation purposes when the surviving spouse died. Accordingly, respondent concludes that property in the QTIP trust should be aggregated with the FOH shares in the Harriett trust for purposes of determining the fair market value of the FOH stock.

Section 2044 was designed to prevent QTIP property from escaping taxation by including it in the estate of the second spouse to die. There is, however, no indication that section 2044 mandated identical tax consequences as an outright transfer to the surviving spouse.

Finally, respondent argues that section 2044(c) is a valuation section, rather than just an inclusion section. See Estate of Young v. Commissioner, 110 T.C. 297, 308–309 (1998). In Estate of Young, we held that section 2040 pro

vides an "artificial inclusion" of joint tenancy property, the entire value less any contribution by the surviving joint tenant. Id. at 315. We rejected the taxpayer's contention that section 2040 was merely an includability section because Congress had provided an explicit approach to valuing joint tenancy property to be included in the decedent's gross estate. Id. at 315–316. Thus, the entire value of the joint tenancy was included in the estate except for that portion attributable to the consideration supplied by the surviving joint tenant. Respondent argues that section 2044 provides a similar "artificial inclusion" for the assets held in the QTIP trust, concluding that the analysis in Estate of Young compels a valuation of the FOH shares as if decedent owned the whole block.

Section 2040(b) explicitly sets forth a special rule of valuation for joint tenancy property, but this special rule only applies to section 2040; section 2044 contains no such directive. The absence of such language in section 2044, which was enacted in the same tax act as section 2040(b), belies respondent's argument that Congress mandated or intended a special rule of valuation to apply to property included in a decedent's estate pursuant to section 2044(a).

Issue 2

Based on our conclusion that the two blocks of FOH shares should not be aggregated, we must determine the fair market value of the FOH stock at decedent's death.

Valuation is a question of fact, so we must weigh all relevant evidence to draw the appropriate inferences. Ahmanson Found. v. United States, 674 F.2d 761, 769 (9th Cir. 1981); Estate of Andrews v. Commissioner, 79 T.C. at 940. The fair market value of stock listed on an established securities market is the mean between the highest and lowest selling prices on the valuation date. Sec. 20.2031-2(b)(1), Estate Tax Regs. A blockage discount may, however, be applied when the block of stock to be valued is so large that it cannot be liquidated in a reasonable time without depressing the market. Sec. 20.2031-2(e), Estate Tax Regs. The concept of blockage is essentially one of timing. See Estate of Smith v. Commissioner, 57 T.C. 650, 657-658 (1972), affd. 510 F.2d 479 (2d Cir. 1975).

Petitioner has the burden of proof as to the correctness and amount of the discount. Rule 142(a); Estate of Van Horne v. Commissioner, 720 F.2d 1114, 1117 (9th Cir. 1983), affg. 78 T.C. 728 (1982). This burden is a burden of persuasion, requiring petitioner to prove the merits of its claim by at least a preponderance of the evidence. Rockwell v. Commissioner, 512 F.2d 882, 885 (9th Cir. 1975), affg. T.C. Memo. 1972-133; Brumley-Donaldson Co. v. Commissioner, 443 F.2d 501, 504 n.4 (9th Cir. 1971), affg. T.C. Memo. 1969-183.

Both parties rely extensively on expert testimony to establish the amount of the discount. Expert opinions are admissible if they will assist the trier of fact to understand evidence that will determine a fact in issue. Fed. R. Evid. 702. We evaluate the opinions of experts in light of the demonstrated qualifications of each expert and all other evidence in the record. Parker v. Commissioner, 86 T.C. 547, 561 (1986). However, we are not bound by the opinion of an expert witness, especially when such opinions are contrary to our judgment. IT&S of Iowa, Inc. v. Commissioner, 97 T.C. 496, 508 (1991). Where experts offer divergent estimates of fair market value, we decide what weight to give those estimates by examining the factors used by those experts to arrive at their conclusions. Casey v. Commissioner, 38 T.C. 357, 381 (1962). While we may accept the opinion of an expert in its entirety, Buffalo Tool & Die Manufacturing Co. v. Commissioner, 74 T.C. 441, 452 (1980), we may be selective and use only part of such an opinion, Parker v. Commissioner, supra. We may also reach a determination of value based on our own examination of the evidence in the record. Estate of Davis v. Commissioner, 110 T.C. 530, 538 (1998).

The parties in this case agree that the undiscounted fair market value of the FOH shares on the valuation date is $6.9375 per share. The parties also agree that a marketability discount is necessary if the shares are not to be aggregated. They disagree, however, as to the appropriate marketability discount to be applied. Respondent contends that the minority blocks of FOH should be valued at $5.8969 per share, a 15-percent discount. Petitioner argues that the shares of FOH have a value of $4.786 per share, a 31-percent discount. Petitioner supports its conclusion with the testimony of Curtis R. Kimball (Kimball) and Ira M. Cotler (Cotler).