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ownership in DHLI. In that regard, they only acquired, in
theory, a fractional interest in the trademark. These
circumstances permitted a certain amount of flexibility and
subjectivity in setting prices and arranging terms.
Accordingly, we agree with respondent that neither the $50
million nor $20 million price for the DHL trademark was set at
arm’s length or represented a fair market value, as those terms
have been defined. Fair market value is based on a willing buyer
and seller. United States v. Cartwright, 411 U.S. at 551. More
importantly, the willing buyer is a purely hypothetical person or
entity, and the personal characteristics of the parties to the
transaction are not taken into account in the valuation. Estate
of Newhouse v. Commissioner, 94 T.C. 193, 218 (1990); see also
Estate of Mueller v. Commissioner, T.C. Memo. 1992-284.
We now proceed, based on the record, to decide the fair
market value of the DHL trademark worldwide. After deciding the
value, we shall decide whether any adjustments to the value are
appropriate. We agree with respondent’s litmus test approach
reflecting that the grossed-up price paid by the foreign
investors reflects value in excess of the shareholder equity
shown in the books of DHLI and MNV. Petitioners’ experts also
agreed that value in excess of book values existed, but concluded
that the value did not reside in the trademark. To some extent,
we agree with both parties’ experts. Somewhere in between their
positions lies the correct answer. Neither the trademark nor the
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