Fair market value of real or personal property is established by agreement or the appraisal and appeal procedures set forth in Iowa Code section 450.37 and subrules 900.9(1) and 900.9(2). If the value is established by agreement, the agreement may be to accept the values of such property as submitted on the Iowa inheritance tax return, to accept a negotiated value or to accept the values as finally determined for federal estate tax purposes. Values submitted on an inheritance tax return constitute an offer regarding the value of the property by the estate. An inheritance tax clearance that is issued based upon property values submitted on an inheritance tax return constitutes an acceptance of those values on that return. An agreement to accept negotiated values or accept values as finally determined for federal estate tax purposes must be an agreement between the department of revenue, the personal representative, and the persons who have an interest in the property. If an agreement cannot be reached regarding the valuation of real property, then the department may request, within 30 days after the return is filed, an appraisal pursuant to Iowa Code sections 450.37 and 450.27 and subrule 900.9(2). Effective for estates with decedents dying on or after July 1, 2004, if an agreement cannot be reached regarding the valuation of real property, then the department may request, within 60 days after the return is filed with the department, an appraisal pursuant to Iowa Code sections 450.37 and 450.27 and subrule 900.9(2). If an appraisal is not requested within the required period, then the value listed on the return is the agreed value of the real property. If an agreement cannot be reached regarding the valuation of personal property, the personal representative or any person interested in the personal property may appeal for a revision of the department's value as set forth in Iowa Code section 450.37 and subrule 900.9(2). Any inheritance tax clearance granted by the department may be subject to revision based on federal audit adjustments. Absent an agreement to the contrary, the six-month extension of the statute of limitations for assessing Iowa inheritance tax based on federal audit adjustments is limited to federal audit adjustments that directly affect Iowa inheritance tax and involve Iowa inheritance tax law that incorporates Internal Revenue Code provisions-see Iowa Code section 450.94(5) and Kelly-Springfield Tire Co. v. Iowa State Board of Tax Review, 414 N.W.2d 113 (Iowa 1987).
(1) In general. With the exception of real estate which has been specially valued under Iowa Code chapter 450B, property included in the gross estate for inheritance tax purposes must be valued under the provisions of Iowa Code section 450.37 at its market value in the ordinary course of trade. See rule 701-900.10 (450) for the rule governing the market value in the ordinary course of trade if the alternate valuation date is elected. "Market value in the ordinary course of trade" and "fair market value" are synonymous terms. In re Estate of McGhee, 105 Iowa 9, 74 N.W. 695 (1898). Fair market value is the price at which the property would change hands between a willing buyer and a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts. The fair market value of a particular item of property includable in the decedent's gross estate is not to be determined by a forced sale price. Nor is the fair market value of an item of property to be determined by the sale price of the item in a market other than that in which such item is most commonly sold to the public, taking into account the location of the item whenever appropriate. See federal regulation Section 20.2031(1)(b) and Iowa Code section 441.21(1)"b" for similar definitions of fair market value.
a.
Values not to
be used. Other kinds of value assigned to property such as, but not
limited to, assessed value of real estate for property tax purposes, cost
price, true value, or book value are only relevant in computing the value of
the property for inheritance tax purposes, to the extent they may be properly
used in the determination of fair market value or special use value. In
re Estate of McGhee, 105 Iowa 9, 74 N.W.695 (1898). Fair market value
cannot be determined alone by agreement between the persons succeeding to the
decedent's property. Also, fair market value cannot be determined alone by
setting out in the decedent's will the price for which property can be sold
In re Estate of Fred W. Rekers, Probate No. 28654, Black Hawk
County District Court, July 26, 1972.
b.
Date of valuation. Unless
the alternate valuation date is elected under Iowa Code section
450.37, or the tax has been
deferred according to Iowa Code sections
450.44 to
450.49, all property includable
in the gross estate must be valued at the time of the decedent's death for the
purpose of computing the tax imposed by Iowa Code section
450.2. Subject to the two
exceptions listed, any appreciation or depreciation of the value of an asset
after the decedent's death is not to be taken into consideration. Insel
v. Wright County, 208 Iowa 295, 225 N.W.378 (1929).
(2) Market value-how determined.
a.
In
general. The fair market value of an item of property, both real and
personal, that is included in the gross estate for inheritance tax purposes is
expressed in the property's monetary equivalent. The process used to determine
fair market value presupposes the voluntary exchange of the item in a market
for its equivalent in money. Hetland v. Bilstad, 140 Iowa 411
415, 118 N.W. 422 (1908). The fact the item of property is not actually sold or
exchanged or even offered for sale is not relevant. It is sufficient for
establishing the item's value to arrive at the specific dollar amount that a
seller would voluntarily accept in exchange for the property and the amount
that a buyer would be willing to pay. Juhl v. Greene County Board of
Review, 188 N.W.2d 351 (Iowa 1971). It is assumed when determining
this specific dollar amount, which is the item's fair market value, that the
seller is desirous of obtaining the highest possible price for the property and
that the buyer does not wish to pay more than is absolutely necessary to
acquire the property
The item of property must be valued in a market where it is
customarily traded to the public. See federal regulation 20.2031-1(b)
Therefore, if an item of property is valued in a market which is not open to
the general public, the party asserting the value in the restricted market has
the burden to prove by a preponderance of the evidence that the value in the
restricted market is the item's fair market value.
The distinction between a public and a restricted market can
be illustrated by the following:
EXAMPLE 1. Under the provisions of the decedent's will, the
personal representative of the estate is given the power to sell the decedent's
property at either a public or private sale. Pursuant to this power, the
personal representative sold the decedent's household goods at public auction
held on a specific day and time which was widely advertised both in the
newspaper in the locality where the decedent lived and also by sale bills
posted in numerous public places in the decedent's community. The household
goods sold at auction for $2,500. The fair market value of the household goods
on the day of sale is $2,500. The public auction is a market where such items
are commonly sold and the public had knowledge of the impending sale. The
public was also invited to bid and the items to be sold were available for
inspection.
EXAMPLE 2. Pursuant to an agreement between the beneficiaries
of the estate, the personal representative sold the decedent's household goods...
