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Abstract

The rapidly escalating values of farmland1 (and some ranchland) in recent years has raised the question of discounting values at death for federal estate tax purposes2 and during life for federal gift tax purposes.3 In general, valuation of land for federal estate tax purposes is based on fair market value4 unless an election is made to value the property under special use valuation,5 the property is owned in tenancy in common and a discount is allowed for the co-ownership, an entity discount is claimed for minority interest or non-marketability or both, a discount is allowed for potential income tax liability for corporations on built-in gains6 or a “blockage” or “market absorption” discount is allowed.7 For gift tax purposes, the valuation is to be based on the price at which, as of the date of the gift, the property would change hands between a willing buyer and a willing seller, neither being under a compulsion to buy or sell and both having reasonable knowledge of the relevant facts.8 However, recent cases have enlarged the opportunities for discounting in several respects.9

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