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The fair market value of the transferred property 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 to sell, and both having reasonable
knowledge of relevant facts.” Sec. 25.2512-1, Gift Tax Regs.
Where property is transferred for less than adequate and full
consideration in money or money’s worth, the amount of the gift
is the amount by which the value of the property transferred
exceeds the value of the property received. See sec. 2512(b).
In determining the value of unlisted stocks, actual arm’s-length
sales of the stock in the normal course of business within a
reasonable time before or after the valuation date are the best
criteria of market value. Ward v. Commissioner, 87 T.C. 78, 101
(1986) (citing Duncan Indus., Inc. v. Commissioner, 73 T.C. 266,
276 (1979)).
The parties dispute whether sales of Huber stock at the
value set by E&Y qualified as arm’s-length sales. Petitioners
cite Morrissey v. Commissioner, 243 F.3d 1145 (9th Cir. 2001),
revg. Estate of Kaufman v. Commissioner, T.C. Memo. 1999-119, to
support the proposition that the transactions at issue qualify as
arm’s-length sales. In Morrissey, a family-owned corporation
retained Merrill Lynch to appraise a minority interest. On the
basis of the report, two shareholders sold their shares to the
second largest shareholder at the price set by Merrill Lynch.
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