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For Federal estate tax purposes, the term “fair market
value” is defined as the price at which 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. United States v. Cartwright, 411
U.S. 546, 551 (1973); sec. 20.2031-1(b), Estate Tax Regs.
The willing buyer and the willing seller are hypothetical
persons, rather than specific individuals or entities, and
individual characteristics of the hypothetical persons or
entities are not necessarily the same as the characteristics of
the eventual actual seller or actual buyer. Estate of Simplot v.
Commissioner, 249 F.3d 1191, 1195 (9th Cir. 2001), revg. 112 T.C.
130 (1999); Estate of Mellinger v. Commissioner, 112 T.C. 26, 33
(1999).
For shares of publicly traded stock, the average of the
highest and lowest quoted selling prices on the valuation date
generally establishes the value of the shares. Section 20.2031-
2(b)(1), Estate Tax Regs. However, if a taxpayer establishes
that the quoted selling prices do not reflect the fair market
value of the shares, then some reasonable modification of the
selling price and other relevant facts and elements of value may
be considered in determining the fair market value. Estate of
Gilford v. Commissioner, 88 T.C. 38, 48 (1987); sec. 20.2031-
2(e), Estate Tax Regs. For example, sale restrictions on shares
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