Specifically, fair market value is "the price at which property would change hands in a transaction between a willing buyer and a willing seller, neither being under a compulsion to buy nor sell and both being reasonably informed as to all the relevant facts." 14 Mertens § 59.01, at 4; accord e.g., Guggenheim v. Rasquin, 312 U.S. 254, 257 n. 4, 85 L.Ed. 813, 61 S.Ct. 507 (1941); Central Trust Co. v. United States, 158 Ct. Cl. 504, 520, 305 F.2d 393, 402 (1962) (per curiam); True v. United States, 547 F. Supp. 201, 202 (D.Wyo. 1982). There is "little evidence [which] could be more probative [of fair market value] than the direct sale [or cost] of the property in question."

Ascertaining the fair market value of infrequently sold, unlisted, closely held stock is recognized as a difficult legal problem. See Central Trust Company v. United States, 305 F.2d 393, 399, 158 Ct.Cl. 504, 514 (1962). A common and accepted technique used by financial analysts and experts in such situations is to obtain, as a basic starting point, the prices of the stocks of corporations in the same or a similar business which are traded on an exchange; to develop some relationship between such prices and the per share earnings, dividends, and book values of the stocks; and then, after some indication, as a result of comparison, of what the closely held stock would sell for on the same basis of relationship to its earnings, dividends, and book value were it also actively traded, to make the necessary refinements and adjustments in such hypothetical comparative selling price as are justified by differences between the unlisted company and those listed which informed investors would reasonably take into account.

The government argues that this evidence was inadmissible under controlling precedent. The Claims Court ruled that the valuation of closely held stock must generally be made without reference to events which occur after the date of the donation, citing inter alia, Fehrs v. United States, 223 Ct.Cl. 488, 620 F.2d 255, 264 n. 6 (1980); Estate of Ridgely v. United States, 180 Ct.Cl. 1220, 1237-39 (1967); Central Trust Co. v. United States, 158 Ct.Cl. 504, 305 F.2d 393, 403 (1962); Grill v. United States, 157 Ct.Cl. 804, 303 F.2d 922, 927 (1962). As "exceptions" to this general "rule," the Claims Court further stated that post-donation data may be used in valuation only where: (1) no material change of circumstances or conditions in the corporation has occurred between the time of donation and the time of the post-donation evidence, or (2) the post-donation changes could have been foreseen at the time of the donation.

This was error on his part because earnings achieved after the stock transfer date ( i.e., March 1, 1965), would not have been known to the prospective purchaser — except perhaps by projection — and thus could not logically fit into a valuation analysis that had to be predicated on the facts known as of the date of transfer. Central Trust Co. v. United States, 158 Ct.Cl. 504, 520, 305 F.2d 393, 403 (1962). However, this impermissible viewing of post-transfer data is of little consequence here since it did not affect the expert's judgment: notwithstanding a substantial profit improvement in 1965, the expert adhered to his position that a prospective purchaser would not view any of Rental's earnings as indicative of its true value.

We undertake this task fully aware of the difficulty inherent in ascertaining the value of the stock of an unlisted closely-held corporation. Central Trust Company v. United States, 305 F.2d 393, 399, 158 Ct.Cl. 504 (1962). Fair market value is the price at which 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. 26 C.F.R. § 20.2031-1(b).

We recognize that expert testimony is peculiarly appropriate in cases dealing with the value of stock of unlisted, closely held corporations. Central Trust Co. v. United States, 158 Ct. Cl. 504 (1962), 305 F.2d 393. Nevertheless, for the reasons stated below, we do not fully agree with either expert's valuation determination.

After 40 years with the Bank of Raymondville, and as its managing officer, Mr. Daugherty was qualified to give an opinion of the fair market value of the stock. In ascertaining the fair market value of the stock of an unlisted closely-held corporation, the opinions of experts are peculiarly appropriate, Central Trust Company v. United States, 305 F.2d 393, 399[1], 158 Ct.Cl. 504 (1962); Rader v. United States, 172 F. Supp. 833, 835-36[3] (D.C.Ill. 1959), and on the record presented, there was ample evidence of the value of a share of stock of the Bank of Raymondville at the time control was sold. The defendants concede as much, but say there was no evidence of the value of a share after control was sold.

In addition, when valuing minority interest stock of a closely-held corporation, the application of certain discounts may be warranted to reflect the stock's lack of marketability and/or lack of voting rights. Cent. Trust Co. v. United States, 158 Ct.Cl. 504, 524, 305 F.2d 393 (1962). Both experts presented valuations consistent with these principles.

These are the kind of "abnormal or nonrecurring items" properly subject to adjustments. Central Trust Co. v. United States, Ct. Claims, 1962, 305 F.2d 393, 403. Nor did the district court err in limiting appellants to an appraisal remedy. Cal.Corp. Code § 1312(a) (b).

"Among the factors which have been considered are: (a) The loss of indispensable corporate management, Estate of J. D. McDermott, a Memorandum Opinion of this Court dated Apr. 30, 1953, affd. 222 F.2d 665 (C.A. 7, 1955); (b) trends in the earnings record of the corporation, Snyder's Estate v. United States, 285 F.2d 857, 862 (C.A. 4, 1961); (c) the value of the underlying assets held by the corporation, Trianon Hotel Co., 30 T.C. 156 (1958); (d) the capacity of the corporation to pay dividends, O'Bryan Bros. v. Commissioner, 127 F.2d 645 (C.A. 6, 1942), affirming 42 B.T.A. 18 (1940); (e) the fact that the stock being valued constitutes less than a controlling interest, Central Trust Co. v. United States, 305 F.2d 393, 432 (Ct.Cl. 1962); and (f) the capitalized value of the corporation's past earnings, Tecla M. Straub, 29 B.T.A. 216, 221 (1933), affd. 76 F.2d 388 (C.A. 3, 1935)." 56 T.C. 388, 430 (1971).