Discussion Topic: Fair Market Value
Discuss the relevance of the following in defining “fair market value” for Federal gift and estate tax purposes:
- Code § 2031(b).
- The definition contained in Reg. § 20.2031–1(b).
- The sentimental value of the property being valued.
- Tangible personality sold as a result of a Craigslist offer.
- Sporadic sales (occurring on other than the valuation date) of stocks traded in an over-the-counter stock exchange.
Address each of these above and support your findings with references from the text, and/or other related tax code, regulations, etc.Do the discussion then do the response posted down below.
Posted 1
Hello Everyone,
The fair market value of property is important in the valuation of that property for taxation purposes. For example, the gift tax is based on the fair market value of the property on the date of the transfer. Whereas, for federal estate taxes, the fair market value on either the date of the owner’s death or the alternate valuation date (if chosen) is used (Raabe et al., 2022).
• Code § 2031(b) rules that for stock and securities that are not listed on the stock exchange and have no sales to use to gather fair market valuation from, the fair market value of stock and securities from other corporations that engage in the same or a similar line of business is used along with all other information to calculate fair market value (Cornell Law School, 2021).
• Reg. § 20.2031–1(b) is a more in-depth discussion of fair market value. This code explains fair market value as being the price at which property will exchange hands from a willing seller to a willing buyer with neither being under compulsion to buy. The fair market value is not to be determined by a forced sale. The fair market value is also not to be determined in a market other than the market that the property is normally sold. If the item of property is regularly sold in the retail market, the fair market value will be the price or comparable to the retail price (Cornell Law School, 2021).
• Sentiment should not play a part in the determination of the fair market value of an item of property. Someone to whom the property holds sentimental value may be willing to pay more for the property than what the general public would pay. The FMV needs to be based on what the general public would pay for the item of property (Raabe et al., 2022).
• The fair market value of tangible personal property that is sold on Craigslist and that is regularly sold in this manner is the retail price at the time of sale. It is presumed that this is the usual retail price (Raabe et al., 2022).
• When there is a market for a stock and it is sold on an over-the-counter stock exchange on a sporadic date the average between the highest and lowest quoted selling price is used to calculate the fair market value (Raabe et al., 2022).
Cornell Law School (2021). 26 CFR § 20.2031-1 – Definition of gross estate; valuation of property. Retrieved from. edu/cfr/text/26/20.2031-1″>https://www.law.cornell.edu/cfr/text/26/20.2031-1
Cornell Law School (2021). 26 U.S. Code § 2031 – Definition of gross estate. Retrieved from. https://www.law.cornell.edu/uscode/text/26/2031
Raabe, W.A., Young, J.C., Nellen, A. & Hoffman Jr., W.H. (2022). Taxation of estates and trusts.
Posted 2
Hello everyone,
Fair Market Value is extremely relevant when it comes to Federal gift and estate tax purposes. “The gift tax is based on the fair market value of the property on the date of the transfer. For Federal estate taxes, the fair market value on the date of the owner’s death or the alternate valuation date (if available and elected) controls, and that value becomes the income tax basis of the asset going forward” (Raabe, et al., 2022). There are different definitions of fair market value that all are relevant to Federal gift tax and estate tax.
- Code § 2031(b) is the closest thing to having a definition for fair market value for when there is no sale price. In these instances, “the value thereof shall be determined by taking into consideration, in addition to all other factors, the value of stock or securities of corporations engaged in the same or similar line of business which are listed on an exchange” (Raabe, et al., 2022). When a company keeps the sale price of something to themselves, a fair market value can be determined by the value of a stock from a company who is in the same business and has their sale prices accessible.
- Reg. § 20.2031–1(b) defines fair market value 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 to sell and both having reasonable knowledge of relevant facts” (Raabe, et al., 2022). According to the Reg. § 20.2031–1(b), fair market value is the price property is sold when both the seller and buyer have the same facts and are in agreement on the sale.
- Sentimental value has no place in determining the fair market value of a property.
- Fair market value is determined by sporadic sales (occurring on other than the valuation date of stocks traded in an over-the-counter stock exchange one of two ways. “If no sales occurred on the valuation date by did occur on dates within a reasonable period before and after the valuation date, the fair market value is the weighted average of the means between the highest and lowest sales prices on the nearest date before and the nearest date after the valuation date. The average is weighted inversely by the respective number of trading days between the selling dates and the valuation date” Raabe, et al., 2022). If there is no sales within a reasonable period before and after the valuation date, the fair market value is determined by taking a weighted average of the means between the bona fide bid and asked prices on the nearest trading dates before and after the valuation date” (Raabe, et al., 2022).
References
Raabe, W.A., Young, J.C., Nellen, A. & Hoffman Jr., W.H. (2022). Taxation of estates and trusts.
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