Internal Revenue Service
Revenue Ruling

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 Rev. Rul. 55-71

1955-1 C.B. 110

IRS Headnote

The Federal excise tax on jewelry, furs, and related articles of personal property is a relevant factor which should be considered in determining the fair market value of such property for Federal estate and gift tax purposes.

Full Text

Rev. Rul. 55-71

Advice has been requested whether the Federal excise tax on jewelry, furs and related articles of personal property should be considered in determining the fair market value of such property for Federal estate and gift tax purposes.

Sections 2031, 2032, and 2512 of the Internal Revenue Code of 1954 (sections 811 and 1005 of the Internal Revenue Code of 1939) require that the property to be included in the decedent's gross estate, or made the subject of a gift, shall be taxed on the basis of the value of the property at the time of the death of the decedent, the optional valuation date, if so elected, or the date of gift.

Section 81.10 of Estate Tax Regulations 105 and section 86.19 of Gift Tax Regulations 108, made applicable here by Treasury Decision 6091, C.B. 1954-2, 47, provide that the value of property includible in the decedent's gross estate or made the subject of a gift, is its fair market value as of the applicable valuation date or at the time of the gift. Those sections define fair market value as the price at which the property would change hands between a willing buyer and a willing seller when the former is not under any compulsion to buy and the latter is not under any compulsion to sell. The regulations further provide that all relevant facts and elements of value as of the applicable valuation date should be considered.

While the determination of fair market value is a question of fact, the question of which criterion or standard should be used in determining the value of property for estate or gift tax purposes is a question of law. See Madeleine D. Powers v. Commissioner , 312 U.S. 259, Ct. D. 1489, C.B. 1941-1, 448.

In Rose Publicker v. Commissioner , 206 Fed.(2d) 250, certiorari denied, 346 U.S. 924, it was held that where jewelry was purchased at retail by a taxpayer and made the subject of gifts, the Federal excise tax should be included in ascertaining the value of the jewelry for Federal gift tax purposes. The court stated that in view of the irreconcilable conflict of testimony of the expert witnesses, the cost of the jewelry, including that part of the donor's cost of the gifts which represented the Federal excise tax, was considered as the best evidence of value. To the same effect, see Anthony D. Duke v. Commissioner , 200 Fed.(2d) 82, certiorari denied, 345 U.S. 906, and Estate of Frank M. Gould v. Commissioner , 14 T.C. 414.

In Florence Guggenheim v. Rasquin , 312 U.S. 254, Ct. D. 1487, C.B. 1941-1, 445, it was held that the value of single premium life insurance policies, which were irrevocably assigned simultaneously with issuance, is cost to the donor rather than their cash surrender value at the time of the transfer. The Court stated, `Presumptively the value of these policies at the date of the gift was the amount which the insured had expended to acquire them. Cost is cogent evidence of value. And here it is the only suggested criterion which reflects the value to the owner * * *. Cost in this situation is not market price in the normal sense of the term. But the absence of market price is no barrier to valuation.' See also Estate of Richard C. DuPont v. Commissioner , 18 T.C. 1134, wherein the Tax Court held that, for estate tax purposes, the proper measure of the value of certain insurance policies, owned by the decedent on the life of his father, was the replacement cost thereof or, in the absence of such replacement cost, the respective interpolated terminal reserve value thereof.

The existence of the Federal excise tax on jewelry, furs, and other related articles of personal property sold by dealers, is an item which will tend to increase the amount at which an individual or an estate would be willing to sell such property. It is an element which affects the general market for that type of property.

In view of the foregoing, it is held that the Federal excise tax on jewelry, furs, and related articles of personal property is a relevant factor which should be considered in determining the fair market value of such property for Federal estate and gift tax purposes