Vanderbilt Law Review


James O. Wynn

First Page



The starting point in the determination of the federal estate tax is the valuation of the property included in the gross estate.' While the Internal Revenue Code does not use the term "fair market value" in defining the gross estate, the regulations promulgated by the Commissioner of Internal Revenue as an interpretation of the estate tax provisions of the Code provide that "the value of every item of property includible in the gross estate is the fair market value thereof." While a creditable argument could be made that Congress, in using the term "value" in defining the gross estate, intended something different from "fair market value," this discussion will assume that the terms are synonymous.

Fair market value is the price at which a seller willing to sell at a fair price and a buyer willing to buy at a fair price, both having a reasonable knowledge of the facts, and neither being under any compulsion, will trade.

Since the question of the price at which such a buyer and such a seller will trade is one of fact, what is the excuse for an article discussing the valuation problems of the family controlled business? The answer lies in the absence of a market place for the family controlled business.

In the case of an estate consisting of a portfolio of listed securities, or even of securities traded "over the counter," few problems arise. There is a market place--and what a willing buyer will pay to a willing seller is a reasonably demonstrable fact. In the case of the family controlled business on the other hand, there being no market place, the determination of fair market value is essentially a matter of opinion upon which reasonable and honest men may and do differ.