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Before the consolidation, several of the bank holding
companies had operating agreements with the Comptroller of the
Currency. These agreements generally required the bank to
correct problem loans, to maintain a prescribed minimum level of
capital, and to pay dividends only according to sound banking
practice. After the consolidation, five of the six banks owned
by National Commerce Bancshares, Inc., paid no dividends.
OPINION
1. Background
Section 2501 imposes a tax on gifts of property by an
individual. Gift tax is based on the fair market value of the
property on the date of the gift. Sec. 2512(a). Fair market
value 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 the relevant facts. United States v. Cartwright,
411 U.S. 546, 551 (1973); sec. 25.2512-1, Gift Tax Regs.
If the stock does not sell for its fair market value, then
reasonable modifications of that price are made to decide its
fair market value. See sec. 20.2031-2(e), Estate Tax Regs. If
selling prices for stock are unavailable, then we decide its fair
market value by considering factors such as the company's net
worth, earning power, dividend-paying capacity, management,
goodwill, position in the industry, the economic outlook in its
industry, and the values of publicly traded stock of comparable
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