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value of the Clinpath stock in the hands of petitioner as if such
property were sold to its shareholders at fair market value.
Sec. 311(b)(1). Fair market value is defined for Federal tax
purposes 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. at 551 (quoting sec. 20.2031-1(b), Estate Tax Regs.). In
general, the best evidence of fair market value is “actual sales
made in reasonable amounts and at arm’s length within a
reasonable time before or after the date for which a value is
sought.” Morris v. Commissioner, 70 T.C. at 988; see also Estate
of Fitts v. Commissioner, 237 F.2d 729 (8th Cir. 1956), affg.
T.C. Memo. 1955-269.
In this case, there was an actual third-party sale of the
Clinpath stock to NHL on the same day as the distribution of the
Clinpath stock to petitioner’s shareholders. Petitioner
contends, however, that the fair market value of the Clinpath
stock as of October 30, 1993, cannot exceed the fair market value
of the clinical business’s assets contributed to Clinpath by
petitioner. Petitioner introduced into evidence a report by
Harry Joe Wells, Jr., which it claims valued “selected” assets as
of October 30, 1993, but which, in reality, purported to value
the clinical business as a “going business” as of October 29,
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