February 6, 2023

Fair Market Value

Sometimes the concept of fair market value may not adequately be understood. Unfortunately for both attorneys and CPAs, sometimes judges and the IRS may not completely comprehend fair market value either, and what may be worse, other valuators also may not completely grasp this notion. By definition, fair market value should be based on hypothetical buyers and sellers; however, at times circumstances applicable to the actual buyer or seller are substituted for the hypothetical buyer or seller — and this can significantly change value. We see this difficulty comes when assuming events surrounding the actual decedent, donor, or litigant are applied to the hypothetical seller, which frequently can even overstate the value. In fact, several tax court decisions have been reversed by applying actual fact patterns to hypothetical buyers and sellers.

At Greene Valuation, we have instituted procedures to ensure this will not happen. We explain this carefully in our reports and identify the hypothetical factor pattern versus the actual. We also thoroughly explain this significant difference to the courts and to the IRS.