-218-
Commissioner, supra at 70. Fair market value is determined in
the market most commonly used by the ultimate consumer, and the
value in that market may or may not represent the highest value
for the product that is the subject of the valuation. Here, with
respect to the interest rate swaps in issue, we believe that the
applicable market is a market comprising largely end users
(including dealers acting as end users).
Having identified the appropriate market for valuation
purposes, we determine the fair market value of FNBC’s swaps at
the amount that an ultimate consumer/hypothetical buyer would in
that market pay for the swaps on the dates of valuation, bearing
in mind that the swaps are considered sold by a hypothetical
seller. Petitioner asks the Court to view the hypothetical buyer
as a dealer entering into swaps intending to earn a profit. We
decline to do so. We believe it inappropriate to limit the
hypothetical willing buyer to the requested subset of buyers
rather than viewing the hypothetical buyer as a member of the
broad group of potential buyers referred to in the accepted
definition of willing buyer. In addition to the fact that even
petitioner acknowledges that dealers enter into swaps without
expecting to earn a profit, e.g., to hedge risks in its portfolio
or to generate business, valuation at the equivalent of the
dealer’s own bid or ask price improperly limits consideration to
buyers who believe they are paying less than fair market value.
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