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The language of section 6324(b) is relatively
straightforward. It establishes personal liability on the part
of the donee for unpaid gift tax, but limits that liability to
the value of the gift received.
Petitioners contend that their subsequent liability for
unpaid gift tax results in an encumbrance on the property
transferred. They go on to argue that such an encumbrance should
be taken into account to reduce the value of the gift received.
We do not agree.
While it is well established that an encumbrance on the
property transferred, such as a mortgage, will be taken into
account when valuing the property, that is not the situation
here. In the case of a mortgage, the gift in substance is the
gift of the equity in the property. However, in this case there
was no encumbrance on the property when it was transferred.
Petitioners were subject to no liability until the donor failed
to pay the gift tax rightfully owed.
True, section 6324(b) places a lien on the transferred
property unless the gift tax is paid, but that lien is not an
encumbrance that reduces the value of the gift. The value of the
gift is measured by the fair market value of the property
transferred. Sec. 2512. Fair market value is the price at which
property would change hands between a willing buyer and a willing
seller, neither being under any compulsion to buy or sell and
both knowing the relevant facts. Sec. 25.2512-1, Gift Tax Regs.
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