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II. Fair Market Value of Decedent’s Interests
A. Introduction
1. General Principles
Property includable in a decedent’s gross estate generally
is to be valued as of the date of the decedent’s death. Sec.
2031. For purposes of the estate tax, property value is
determined by finding the price at which the property would
change hands between a willing buyer and a willing seller,
neither being under any compulsion to buy or to sell, and both
having reasonable knowledge of relevant facts. Sec. 20.2031-
1(b), Estate Tax Regs. The willing buyer and willing seller are
hypothetical persons. 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)). The hypothetical buyer and
seller are presumed to be dedicated to achieving the maximum
economic advantage. Id.
Valuation is a factual determination, and the trier of fact
must weigh all relevant evidence of value and draw appropriate
inferences. Estate of Deputy v. Commissioner, T.C. Memo. 2003-
176.
There are three common approaches to measure the interest in
a closely held entity--the income approach, the net asset value
(NAV) approach, and the market approach. Id. Value is
determined under the income approach by computing a company’s
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