- 34 -
adequately established the fair market value (i.e., basis) of its
health insurance group contracts as of January 1, 1987.
In regard to the nature of the evidence needed to establish
the amount of loss deductions under section 165, Mertens, Law of
Federal Income Taxation, provides generally as follows:
Often, in proving the amount of actual loss, the
taxpayer must demonstrate not only the value of what
the taxpayer may have left after the loss but his cost
or other basis in the item on which loss is sustained.
This phase of the problem requires essentially a
factual demonstration. Estimates and crude
approximations are not sufficient. [7 Mertens, Law of
Federal Income Taxation, sec. 28.04, at 25 (2001 rev.);
fn. ref. omitted.]10
10 The concept that different valuation contexts may call
for different valuation approaches is not a novel or new
proposition. As stated in a leading valuation treatise: “an
asset’s value for one federal tax purpose may be different from
its value for another federal tax purpose.” Bogdanski, Federal
Tax Valuation, par. 2.03, at 2-169 (1996). An asset’s value may
differ depending on the valuation context because “both the
concepts of value and the technique of its proof are decidedly
influenced by the specific purpose for which the valuation is
made.” 1 Bonbright, The Valuation of Property, at 4-5 (photo.
reprint 1965) (1937); see also, Smith & Parr, Valuation of
Intellectual Property and Intangible Assets, ch. 5, at 140-142
(2d ed. 1994) (the value of an asset may be impacted by the
underlying purpose for the valuation of the asset).
Courts have recognized that in the estate tax context the
valuation approach used to calculate the value of a gross estate
(e.g., a grouping of the assets together) may be different from
the approach used to calculate the value of a deduction from the
gross estate. Ahmanson Found. v. United States, 674 F.2d 761
(9th Cir. 1981); Estate of Chenoweth v. Commissioner, 88 T.C.
1577 (1987). In Ahmanson Found., the Court of Appeals for the
Ninth Circuit stated as follows:
there are compelling considerations in conflict with
the initially plausible suggestion that valuation for
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