Fair Market Value in Estate and Gift Tax

This chapter reviews the history and development of fair market value and addresses the elements comprising this standard of value, which is cited more frequently than any other standard of value. The fair market value is 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. Determining fair market value requires the establishment of the premise of value to understand exactly how the business should be valued. The general premise driving the theoretical underpinnings of fair market value is that fair market value is a value in exchange. This value in exchange is estimated whether the property is offered for sale or not; it is presumed to be for sale in a hypothetical transaction at a point where there is a meeting of the minds between a willing buyer and willing seller. Under the value-in-exchange premise, a business can be viewed as a going concern or in liquidation, a determination that can depend on a number of factors, including the nature and condition of the company and the prerogatives of control inherent in the interest being valued.