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The parties agree that petitioners were eligible to make
an election under section 83(b) with regard to their SWI
stock.
The sole dispute between the parties to this case is
over the fair market value of the stock at the time of the
purchase, June 30, 1989. In their section 83(b) election,
petitioners claimed that the fair market value of the stock
was $60.98 per share, the price petitioner paid for his 500
shares. In the notice of deficiency, respondent determined
that the fair market value of the stock was $1,739.82 per
share, and that petitioners' 1989 taxable income should
therefore be increased in the amount of $839,420 (i.e.,
$1,739.82 minus $60.98 times 500). In a report prepared
for trial, petitioners' expert valued the stock at $55 per
share. At trial, respondent's expert testified that the
stock was worth $1,798 per share.
Generally, 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 sell, and both having reasonable knowledge of
the relevant facts." United States v. Cartwright, 411
U.S. 546, 551 (1973) (quoting section 20.2031-1(b),
Estate Tax Regs.); see also Culp v. Commissioner, T.C.
Memo. 1989-517 (applying this standard to a section 83(b)
election).
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