What is the IRS definition of fair market value?

The IRS defines fair market value as 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. This definition underlies many tax concepts, including valuations for estate and gift tax, charitable contributions, and some property transactions. The key elements are: an open, competitive market; informed parties; and no undue pressure on either side. When you see “FMV” in IRS guidance, it almost always refers back to this standard phrasing, which is meant to reflect a realistic, arm’s‑length transaction under normal conditions.

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