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1(b), Estate Tax Regs.); Estate of Hall v. Commissioner, 92 T.C.
312, 335 (1989). Fair market value is tested on an objective
basis using a hypothetical buyer and seller and not on the basis
of particular entities or individuals involved. See Estate of
Andrews v. Commissioner, 79 T.C. 938, 956 (1982); Estate of
Bright v. United States, 658 F.2d 999, 1005-1006 (5th Cir. 1981).
The circumstances here are unconventional in several
respects. Firstly, the asset in question was incomplete and
under construction at the time of death. More significantly, the
residence was to be restored to its prefire specifications. As
we understand that concept, the cost of restoring the destroyed
residence to its original vintage condition was substantially
greater than the per-square-foot cost of constructing a
contemporary home. In other words, there was no compulsion for
the construction costs to be within boundaries that comport with
resale value. That anomaly resulted in circumstances where more
was being expended for construction and restoration than could
possibly be realized if the structure were sold upon completion.
The facts here reflect that the fair market value of the finished
residence was substantially less than the cost of restoration.
Finally, although the insurance company’s obligation was
contractually and legally limited to the payment of up to one-
half of the stated policy limit if the residence was rebuilt, the
insurance company unilaterally agreed to bear the cost of
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