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“relevant factors” into account.8 See sec. 25.2512-2(f), Gift
Tax Regs. The factors we must consider are those that an
informed buyer and an informed seller would take into account.
See Hamm v. Commissioner, 325 F.2d 934, 938 (8th Cir. 1963),
affg. T.C. Memo. 1961-347. Rev. Rul. 59-60, 1959-1 C.B. 237,
“has been widely accepted as setting forth the appropriate
criteria to consider in determining fair market value”, Estate of
Newhouse v. Commissioner, 94 T.C. 193, 217 (1990); it lists the
following factors to be considered, which are quite similar to
the “relevant factors” listed in section 25.2512-2(f), Gift Tax
Regs.:
(a) The nature of the business and the history of the
enterprise from its inception.
(b) The economic outlook in general and the condition
and outlook of the specific industry in particular.
8 Petitioners’ expert Ms. Walker stated that the three
transactions in Demco stock that occurred more than 5 years
before the gifts were “not deemed relevant to the valuation” due
to the passage of time. By contrast, Ms. Walker asserted that
the redemptions were “not conclusively indicative of fair market
value” due to the buy-sell agreement. However, she never stated
that they were irrelevant.
We agree with Ms. Walker’s conclusion that none of the prior
transactions is determinative. However, we believe that the
redemptions, which took place at a price equivalent to
approximately $432 per share, are nevertheless relevant evidence
of the value of the gifts, to be taken into account with all
other relevant factors. Although the three officers/shareholders
could have received book value for their stock upon their deaths
or terminations of employment, two of the officers did not choose
to retire until 6 years after the redemptions; the third was
still in Demco’s employ at the time of trial.
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