SECTION 2. BACKGROUND

Section 2512(a) of the Internal Revenue Code provides that, if a gift is made in property, the value of the property at the date of the gift is the amount of the gift.

Section 25.2512–1 of the Gift Tax Regulations provides that for gift tax purposes the value of property is the price at which the property would change hands between a willing buyer and a willing seller, nei

ther being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts.

Section 2031(a) provides that the value of the gross estate is determined by including the value at the time of the decedent’s death of all property, real or personal, tangible or intangible, wherever situated.

Section 20.2031–1(b) of the Estate Tax Regulations provides that the value of every item of property includible in a decedent’s gross estate is its fair market value at the time of the decedent’s death.

Section 2032(a) provides that the executor may elect to use an alternate valuation date. Under this election, the value of all property included in the gross estate generally is determined as of 6 months after the decedent’s death. However, property distributed, sold, exchanged, or otherwise disposed of within 6 months after death must be valued as of the date of sale, exchange, or other disposition.

Section 2624(a) provides that, except as otherwise provided in Chapter 13, property is valued at the time of the generation- skipping transfer.

FAS 123 establishes financial accounting and reporting standards for stockbased employee compensation plans. Under FAS 123, the fair value of a stock option granted by a public entity is estimated using an option pricing model (for example, the Black-Scholes model or a binomial model) that takes into account as of the option grant date: (1) the exercise price of the option; (2) the expected life of the option; (3) the current price of the underlying stock; (4) the expected volatility of the underlying stock; (5) the expected dividends on the underlying stock; and (6) the risk-free interest rate for the expected term of the option.

FAS 123 generally requires a public entity to disclose in its financial statements for each year beginning after December 15, 1994, a description of the method and significant assumptions used during the year to estimate the fair value of stock options granted during the year, including the following weighted-average information: (1) expected life of the options; (2) expected volatility; (3) expected dividends; and (4) risk-free interest rate. (The foregoing is not a complete list of the disclosures required by FAS 123. For example, FAS 123 also requires financial state

1998–18 I.R.B. 15 May 4, 1998

(4) the terms of the option being valued permit the option to be transferred to, or for the benefit of, one or more persons other than either persons who are the natural objects of the transferor’s bounty or a charitable organization;

ment disclosure of the weighted-average exercise prices of options granted during the year.)