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V. Fair Market Value of the Gifted Interest
A. Introduction
1. General Principles
Section 25.2512-1, Gift Tax Regs., provides that the value
of property for gift tax purposes is “the price at which such
property would change hands between a willing buyer and a willing
seller, neither being under any compulsion to buy or sell, and
both having reasonable knowledge of relevant facts.”9 The
willing buyer and willing seller are hypothetical persons, rather
than specific individuals or entities, and their characteristics
are not necessarily the same as those of the donor and the donee.
Estate of Newhouse v. Commissioner, 94 T.C. 193, 218 (1990)
(citing Estate of Bright v. United States, 658 F.2d 999, 1006
(5th Cir. 1981)).10 The hypothetical willing buyer and willing
9 Relying on Morrissey v. Commissioner, 243 F.3d 1145, 1148
(9th Cir. 2001), revg. Estate of Kaufman v. Commissioner, T.C.
Memo. 1999-119, and Estate of Smith v. Commissioner, T.C. Memo.
1999-368, petitioners contend that the confirmation agreement is
conclusive proof of the value of the gifted interest because such
agreement was an arm’s-length transaction that was the
“functional equivalent of an actual sale.” We disagree. Suffice
it to say that, in the long run, it is against the economic
interest of a charitable organization to look a gift horse in the
mouth.
10 Although the cited cases involved the estate tax, it is
well settled that the estate tax and the gift tax, being in pari
materia, should be construed together. See, e.g., Shepherd v.
Commissioner, 283 F.3d 1258, 1262 n.7 (11th Cir. 2002) (citing
Harris v. Commissioner, 340 U.S. 106, 107 (1950)), affg. 115 T.C.
376 (2000).
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