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OPINION
Issue 1. The Fair Market Value of WVI’s Common Stock
The first issue presented involves the valuation of shares of
WVI’s stock awarded to Dr. Gow as a bonus. The parties agree that
the value of these shares constitutes income to Dr. Gow.
The standard for valuation is fair market value, which is
defined as “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 relevant facts.” United States v. Cartwright, 411
U.S. 546, 551 (1973); Collins v. Commissioner, 3 F.3d 625, 633 (2d
Cir. 1993), affg. T.C. Memo. 1992-478; Estate of Newhouse v.
Commissioner, 94 T.C. 193, 217 (1990). This standard is objective,
using a purely hypothetical willing buyer and willing seller, each
of whom would seek to maximize his or her profit. See Estate of
Watts v. Commissioner, 823 F.2d 483, 486 (11th Cir. 1987), affg.
T.C. Memo. 1985-595; Estate of Simplot v. Commissioner, 112 T.C.
130, 151-152 (1999); Estate of Mitchell v. Commissioner, T.C. Memo.
1997-461. The hypothetical buyer and seller are not specific
individuals and their characteristics are not necessarily the same
as the personal characteristics of an actual seller or a particular
buyer. See Propstra v. United States, 680 F.2d 1248, 1251-1252
(9th Cir. 1982); Estate of Newhouse v. Commissioner, supra at 218.
However, the hypothetical sale should not be construed in a factual
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