If you make gift of stocks or bonds, your brokerage statement shows the value of the securities transferred out. Or if the securities went to a charity, the charity may report a value of the securities received (or the proceeds if the securities were sold). However, what value does the IRS want you to use when you report the transfer?
In general, the answer is that the IRS wants you to use the Fair Market Value of the securities on the day they were transferred. For closely held securities, an appraisal may be required. For securities regularly traded on a public market, the Treasury regulations provide us with specific guidance.
Gifts of Stocks & Bonds
Treasury Reg. §25.2512-2(b)(1) directs that the valuation of stocks & bonds gifted must be reported on a gift tax return using “the mean between the highest and lowest quoted selling prices on the date of the gift is the fair market value per share or bond.”
The regulations continue to provide direction for valuation of stocks & bonds when the securities were not traded on the date of gift.
Bequests of Stocks & Bonds
When a security is included in the gross estate of a decedent, Treasury Reg. §20.2031-2(b)(1) contains language almost identical to the gift tax regulations: “the mean between the highest and lowest quoted selling prices on the date of the gift is the fair market value per share or bond.”
Charitable Deduction Valuation
IRC §170 and the regulations thereunder are silent as to the valuation of stocks & bonds, other than to permit a charitable deduction for the “fair market value” (see §1.170A-1(c)(2)). But because charitable deductions can be viewed as gifts to charitable organizations, the gift tax regulations (above) regarding the valuation of marketable securities should be used to value charitable gifts.