-237-
Sziklay took exception to the opinions of Sullivan and Smithson
that both theory and practice demonstrate that administrative
costs should be calculated on a portfolio basis. We agree with
O’Brien and Sziklay that the adjustments must be computed on a
swap-by-swap basis. See H. Rept. 103-111, supra at 665, 1993-3
C.B. at 241 (fair market value determined by valuing each
security separately); see also sec. 20.2031-1(b), Estate Tax
Regs. (“The value is generally to be determined by ascertaining
as a basis the fair market value as of the applicable valuation
date of each unit of property. For example, in the case of
shares of stock or bonds, such unit of property is generally a
share of stock or a bond.”).
E. Administrative Costs
1. Overview
Petitioner argues that the fair market value of FNBC’s swaps
included an administrative costs adjustment. Respondent concedes
that administrative costs may affect value and that market values
may need to be adjusted for future administrative costs to arrive
at fair market value. Respondent asserts that administrative
costs adjustments are allowed only to the extent that they are
derived from market data.
We agree with petitioner that the fair market values of
FNBC’s swaps include an administrative costs adjustment. We
agree with O’Brien that a procedure in which an entity such as
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