According to the regulations, the value referred to in the IRC is defined as "fair market value." Fair market value is itself 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 nor sell, and both having reasonable knowledge of relevant facts."9 The so-called hypothetical "willing buyer/seller" standard is prevalent throughout the case law dealing with this issue."0 Given the importance of this standard, additional discussion is warranted.

The standard requires an analysis of both sides of the transaction. It is not appropriate to focus solely upon what someone would pay for the property or for what price someone would sell it. Rather, one must look at both sides of the transaction. In the decisions discussed below, courts criticize both parties for having failed to look at the buyer's and seller's positions. Furthermore, the hypothetical buyer and seller are just that - hypothetical. One should not attempt to focus on a particular buyer or seller, such as family members or corporations. The hypothetical buyer and seller are also presumed to deal at arm's length.

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