-198-
effect of FNBC’s failure to take netting into account was large
and systematic.
VI. Application of Fair Market Value
A. Overview
As just discussed, we will respect FNBC’s mark-to-market
method for Federal income tax purposes if it meets the fair
market value requirements of section 475. FNBC’s application of
its mark-to-market method will meet those requirements only if
the method arrives at the fair market value of FNBC’s swaps and
does so as of the applicable valuation dates.
The term “fair market value” is used throughout the Internal
Revenue Code, but has never been defined by Congress.64 The
64 As the Court noted in Estate of Auker v. Commissioner,
T.C. Memo. 1998-185:
Disputes over valuation fill our dockets, and for
good reason. We approximate that 243 sections of the
Code require fair market value estimates in order to
assess tax liability, and that 15 million tax returns
are filed each year on which taxpayers report an event
involving a valuation-related issue. It is no mystery,
therefore, why valuation cases are ubiquitous. Today,
valuation is a highly sophisticated process. We cannot
realistically expect that litigants will, will be able
to, or will want to, settle, rather than litigate,
their valuation controversies if the law relating to
valuation is vague or unclear. We must provide
guidance on the manner in which we resolve valuation
issues so as to provide a roadmap by which the
Commissioner, taxpayers, and valuation practitioners
can comprehend the rules applicable thereto and use
these rules to resolve their differences. Clearly
articulated rules will also assist appellate courts in
their review of our decisions in the event of an
(continued...)
Page: Previous 188 189 190 191 192 193 194 195 196 197 198 199 200 201 202 203 204 205 206 207 NextLast modified: May 25, 2011