[Code of Federal Regulations]
[Title 26, Volume 14]
[Revised as of April 1, 2004]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR25.2512-2]

[Page 540-543]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
PART 25_GIFT TAX; GIFTS MADE AFTER DECEMBER 31, 1954--Table of Contents
 
Sec.  25.2512-2  Stocks and bonds.

    (a) In general. The value of stocks and bonds is the fair market 
value per share or bond on the date of the gift.
    (b) Based on selling prices. (1) In general, if there is a market 
for stocks or bonds, on a stock exchange, in an over-the-counter market 
or otherwise, the mean between the highest and lowest quoted selling 
prices on the date of the gift is the fair market value per share or 
bond. If there were no sales on the date of the gift but there were 
sales on dates within a reasonable period both before and after the date 
of the gift, the fair market value is determined by taking a weighted 
average of the means between the highest and lowest sales on the nearest 
date before and the nearest date after the date of the gift. The average 
is to be weighted inversely by the respective numbers of trading days 
between the selling dates and the date of the gift. If the stocks or 
bonds are listed on more than one exchange, the records of the exchange 
where the stocks or bonds are principally dealt in should be employed if 
such records are available in a generally available listing or 
publication of general circulation. In the event that such records are 
not so available and such stocks or bonds are listed on a composite 
listing

[[Page 541]]

of combined exchanges available in a generally available listing or 
publication of general circulation, the records of such combined 
exchanges should be employed. In valuing listed securities, the donor 
should be careful to consult accurate records to obtain values as of the 
date of the gift. If quotations of unlisted securities are obtained from 
brokers, or evidence as to their sale is obtained from the officers of 
the issuing companies, copies of letters furnishing such quotations or 
evidence of sale should be attached to the return.
    (2) If it is established with respect to bonds for which there is a 
market on a stock exchange, that the highest and lowest selling prices 
are not available for the date of the gift in a generally available 
listing or publication of general circulation but that closing prices 
are so available, the fair market value per bond is the mean between the 
quoted closing selling price on the date of the gift and the quoted 
closing selling price on the trading day before the date of the gift. If 
there were no sales on the trading day before the date of the gift but 
there were sales on dates within a reasonable period before the date of 
the gift, the fair market value is determined by taking a weighted 
average of the quoted closing selling prices on the date of the gift and 
the nearest date before the date of the gift. The closing selling price 
for the date of the gift is to be weighted by the respective number of 
trading days between the previous selling date and the date of the gift. 
If there were no sales within a reasonable period before the date of the 
gift but there were sales on the date of the gift, the fair market value 
is the closing selling price on the date of the gift. If there were no 
sales on the date of the gift but there were sales within a reasonable 
period both before and after the date of the gift, the fair market value 
is determined by taking a weighted average of the quoted closing selling 
prices on the nearest date before and the nearest date after the date of 
the gift. The average is to be weighed inversely by the respective 
numbers of trading days between the selling dates and the date of the 
gift. If the bonds are listed on more than one exchange, the records of 
the exchange where the bonds are principally dealt in should be 
employed. In valuing listed securities, the donor should be careful to 
consult accurate records to obtain values as of the date of the gift.
    (3) The application of this paragraph may be illustrated by the 
following examples:

    Example (1). Assume that sales of stock nearest the date of the gift 
(Friday, June 15) occurred two trading days before (Wednesday, June 13) 
and three trading days after (Wednesday, June 20) and on these days the 
mean sale prices per share were $10 and $15, respectively. The price of 
$12 is taken as representing the fair market value of a share of stock 
as of the date of the gift

[(3x10)+(2x15)]/5
    Example (2). Assume the same facts as in example 1 except that the 
mean sale prices per share on June 13 and June 20 were $15 and $10 
respectively. The price of $13 is taken as representing the fair market 
value of a share of stock as of the date of the gift

[(3x15)+(2x10)]/5
    Example (3). Assume that on the date of the gift (Tuesday, April 3, 
1973) the closing selling price of certain listed bonds was $25 per bond 
and that the highest and lowest selling prices are not available in a 
generally available listing or publication of general circulation for 
that date. Assume further, that the closing selling price of such bonds 
was $21 per bond on the day before the date of the gift (Monday, April 
2, 1973). Thus, under paragraph (b)(2) of this section, the price of $23 
is taken as representing the fair market value per bond as of the date 
of the gift

[(25+21)]/2
    Example (4). Assume the same facts as in example 3 except that there 
were no sales on the day before the date of the gift. Assume further, 
that there were sales on Thursday, March 29, 1973, and that the closing 
selling price on that day was $23. The price of $24.50 is taken as 
representing the fair market value per bond as of the date of the gift

[(1x23)+(3x25)]/4
    Example (5). Assume that no bonds were traded on the date of the 
gift (Friday, April 20). Assume further, that sales of bonds nearest the 
date of the gift occurred two trading days before (Wednesday, April 18) 
and three trading days after (Wednesday, April 25) the date of the gift 
and that on these two days the closing selling prices per bond were $29 
and $22, respectively. The highest and lowest selling prices are not 
available for these dates in a generally available listing or 
publication of general circulation. Thus, under paragraph (b)(2) of this 
section the price of $26.20 is taken as representing the fair market 
value of a bond as of the date of the gift

[(3x29)+(2x22)]/5


[[Page 542]]


    (c) Based on bid and asked prices. If the provisions of paragraph 
(b) of this section are inapplicable because actual sales are not 
available during reasonable period beginning before and ending after the 
date of the gift, the fair market value may be determined by taking the 
mean between the bona fide bid and asked prices on the date of the gift, 
or if none, by taking a weighted average of the means between the bona 
fide bid and asked prices on the nearest trading date before and the 
nearest trading date after the date of the gift, if both such nearest 
dates are within a reasonable period. The average is to be determined in 
the manner described in paragraph (b) of this section.
    (d) Where selling prices and bid and asked prices are not available 
for dates both before and after the date of gift. If the provisions of 
paragraphs (b) and (c) of this section are inapplicable because no 
actual sale prices or quoted bona fide bid and asked prices are 
available on a date within a reasonable period before the date of the 
gift, but such prices are available on a date within a reasonable period 
after the date of the gift, or vice versa, then the mean between the 
highest and lowest available sale prices or bid and asked prices may be 
taken as the value.
    (e) Where selling prices or bid and asked prices do not represent 
fair market value. In cases in which it is established that the value 
per bond or share of any security determined on the basis of the selling 
or bid and asked prices as provided under paragraphs (b), (c), and (d) 
of this section does not represent the fair market value thereof, then 
some reasonable modification of the value determined on that basis or 
other relevant facts and elements of value shall be considered in 
determining fair market value. Where sales at or near the date of the 
gift are few or of a sporadic nature, such sales alone may not indicate 
fair market value. In certain exceptional cases, the size of the block 
of securities made the subject of each separate gift in relation to the 
number of shares changing hands in sales may be relevant in determining 
whether selling prices reflect the fair market value of the block of 
stock to be valued. If the donor can show that the block of stock to be 
valued, with reference to each separate gift, is so large in relation to 
the actual sales on the existing market that it could not be liquidated 
in a reasonable time without depressing the market, the price at which 
the block could be sold as such outside the usual market, as through an 
underwriter, may be a more accurate indication of value than market 
quotations. Complete data in support of any allowance claimed due to the 
size of the block of stock being valued should be submitted with the 
return. On the other hand, if the block of stock to be valued represents 
a controlling interest, either actual or effective, in a going business, 
the price at which other lots change hands may have little relation to 
its true value.
    (f) Where selling prices or bid and asked prices are unavailable. If 
the provisions of paragraphs (b), (c), and (d) of this section are 
inapplicable because actual sale prices and bona fide bid and asked 
prices are lacking, then the fair market value is to be determined by 
taking the following factors into consideration:
    (1) In the case of corporate or other bonds, the soundness of the 
security, the interest yield, the date of maturity, and other relevant 
factors; and
    (2) In the case of shares of stock, the company's net worth, 
prospective earning power and dividend-paying capacity, and other 
relevant factors.

Some of the ``other relevant factors'' referred to in subparagraphs (1) 
and (2) of this paragraph are: The goodwill of the business; the 
economic outlook in the particular industry; the company's position in 
the industry and its management; the degree of control of the business 
represented by the block of stock to be valued; and the values of 
securities of corporations engaged in the same or similar lines of 
business which are listed on a stock exchange. However, the weight to be 
accorded such comparisons or any other evidentiary factors considered in 
the determination of a value depends upon the facts of each case. 
Complete financial and other data upon which the valuation is based 
should be submitted with the return, including copies of reports of any 
examinations of the company made by accountants, engineers,

[[Page 543]]

or any technical experts as of or near the date of the gift.

[T.D. 6334, 23 FR 8904, Nov. 15, 1958; 25 FR 14021, Dec. 31, 1960, as 
amended by T.D. 7327, 39 FR 35355, Oct. 1, 1974; T.D. 7432, 41 FR 38769, 
Sept. 13, 1976]