662. How is investment property valued for federal transfer tax purposes?Nuco Employeercline202014-06-13T15:28:00Z2014-06-23T00:13:00Z2014-06-23T00:13:00Z39674577Summit Business Media8325551914Site Map/Investments/ValuationSite Map/Transfer Taxation/Valuation/GeneralTaxFactsDefaultArticle2005-12-14T00:00:00ZSite Map/Other/Starting Points/Starting Points (Investments)Site Map/Transfer Taxation/Quick Clicks/Valuation124531535-00-tf2.xml1535.00;#1843;#2422;#2185;#2420;#0x010100C568DB52D9D0A14D9B2FDCC96666E9F2007948130EC3DB064584E219954237AF3900242457EFB8B24247815D688C526CD44D009C4E67E972694125ABDA91AC61F5E51FTax Facts 2Starting Point – How is investment property valued for federal transfer tax purposes?12800.0000000000TaxFactsDefaultArticleSBMEDIA\moss-admin2010-01-14T22:19:08Z662. How is investment property valued for federal transfer tax purposes?“Fair market value” is the measure, defined as “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.” In the case of the estate tax, fair market value is determined as of the date of the decedent’s death, except that if the executor elects the alternate valuation method, fair market value is determined in accordance with the rules explained at Q 663. In the case of the gift tax, fair market value is determined as of the date of the gift. Property is not to be valued at the value at which it is assessed for local tax purposes unless that value represents the fair market value as of the applicable valuation date. Planning Point: The property is generally valued based on its highest and best use, which may be inconsistent with how the property is used at the time of the gift or at the time of death. All relevant facts and elements of value as of the applicable valuation date are to be considered in every case.Treas. Regs. §§20.2031-1(b), 25.2512-1.In the case of any taxable gift which is a direct skip within the meaning of the generation-skipping transfer tax (GST tax) (see Q 626 et seq.), the amount of such gift is increased by the amount of the GST tax imposed on the transfer.IRC Sec. 2515. See Q 627 for special GST tax valuation rules.Special rules apply to the valuation of particular kinds of investment property, such as stocks and bonds (Q 664), notes (Q 666), mutual fund shares (Q 670), certain kinds of business interests (Q 672). See Q 675 on the valuation of real estate. The principle of blockage discounting, applied in the valuation of a sizeable block of shares of corporate stock (see Q 664), can also be applied in valuing artwork.Calder v. Comm., 85 TC 713 (1985). Special rules also apply where, under certain conditions spelled out in IRC Section 2032A, an executor may elect to value, for federal estate tax purposes, real property (called “qualified real property”) devoted to farming or other trade or business (called “qualified use”) by the decedent or a member of the decedent’s family on the date of the decedent’s death, on the basis of its actual use rather than by taking into account the “highest and best” use to which the property could be put. See also Q 7947. Revenue Ruling 59-60 1959-1 CB 237. is the most often-cited authority for the basic principles of valuing closely-held stock or other business interest for tax purposes.Assets in a restricted management account (RMA) are valued at fair market value, without regard to any RMA restrictions.Rev. Rul. 2008-35, 2008-29 IRB 116.Property includable in a surviving spouse’s estate as qualified terminable interest property (see Q 610) under IRC Section 2044 (see Q 589) is not aggregated with other property includable in the estate for estate tax valuation purposes.Est. of Bonner v. U.S., 84 F. 3d 196, 96-2 USTC ¶60,237 (5th Cir. 1996), rev’g an unpublished decision (S.D. Tex.); Est. of Mellinger v. Comm., 112 TC 26 (1999), acq. AOD 1999-006. However, property included in the gross estate because of a general power of appointment under IRC Section 2041 (see Q 589) should be aggregated with property owned outright by the powerholder for estate tax valuation purposes.FSA 200119013; Est. of Fontana v. Comm., 118 TC 318 (2002).With respect to gift and estate tax returns, 20% of an underpayment attributable to a substantial gift or estate tax valuation understatement is added to tax.IRC Sec. 6662. There is a substantial gift or estate tax valuation understatement if (1) the value claimed was 65% or less of the correct amount; and (2) the underpayment exceeds $5,000. If the value claimed was 40% or less of the correct amount (and the underpayment exceeds $5,000), 40% of an underpayment attributable to such a gross gift or estate tax valuation understatement is added to tax.IRC Sec. 6662(g)(2). The 20% or 40% penalty is not imposed with respect to any portion of the underpayment for which it is shown that there was reasonable cause and the taxpayer acted in good faith.IRC Sec. 6664(c)(1).A gift which is disclosed on a gift tax return in a manner adequate to apprise the Service of the nature of the item may not be revalued after the statute of limitations (generally, three years after the return is filed) has expired.IRC Sec. 6501(c)(9).See Q 679 for Chapter 14 special valuation rules.