-215-
did not apply to FNBC’s earlier years, we believe that FNBC was
bound by a similar rule for those earlier years. As we see it,
the rule in the earlier years was that a proper application of a
mark-to-market method required that FNBC value its swaps as of
the end of its taxable year.71
FNBC failed to meet this yearend valuation requirement in
that it did not value all of its swaps as of the last business
day before its yearend. Petitioner relies erroneously upon
Wal-Mart for a contrary conclusion. Whereas the taxpayer in Wal-
Mart estimated inventory shrinkage as of its yearend (the
applicable valuation date there), FNBC is not estimating the
value of its swaps as of its applicable valuation date (i.e., the
last business day before yearend) but is using an early valuation
date.
IX. Proper Hypothetical Market
We consider next the proper hypothetical market in which to
value FNBC’s swaps. The Code provides no specific rule as to the
proper market in which to determine fair market value. The
regulations do, at least in the case of valuations which are
required for Federal estate and gift tax purposes. For Federal
estate tax purposes, the regulations provide:
The fair market value of a particular item of property
includible in the decedent’s gross estate is not to be
71 As we observed supra, FNBC’s last business day of each
subject year was the same as its last day of the year.
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