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being under any compulsion to buy or to sell, and both having a
reasonable knowledge of the relevant facts. United States v.
Cartwright, 411 U.S. 546, 551 (1973); sec. 25.2512-1, Gift Tax
Regs.
Here, the parties have agreed that the net asset value
method is appropriate for the valuation of the stock of the
corporation. They are also in agreement as to the fair market
value of the property in question and the valuation of the shares
as reported on petitioner's Federal gift tax returns. The
parties further agree that the corporation would have recognized
capital gains in the amount of $530,500, $402,094, and $402,892
for the taxable years 1991, 1992, and 1993, respectively, if the
property had been disposed of in a taxable disposition (built-in
capital gain). However, the parties diverge on whether, in
arriving at the corporation's net asset value, adjustments should
be made to reflect costs that would, potentially, be incurred if
its assets were liquidated.
Petitioner contends that, for gift tax purposes, she is
entitled to take into account the full amount of capital gain
taxes to reduce the fair market value of the stock of the
corporation. Simply put, petitioner argues that a willing
purchaser of the corporate stock would have discounted the
otherwise applicable fair market value because of the income tax
liability inherent in the aforementioned property. The parties
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