In Dunn v Commissioner, what was permissible regarding valuation adjustments?

In Dunn v Commissioner, the court held that it was permissible to reduce the valuation by the entire built-in capital gain. This case emphasized the significance of built-in gains when determining the fair market value of an asset. Specifically, when assessing valuation, it is important to consider the tax implications tied to the built-in gains that would be realized if the asset were sold. The court recognized that these embedded gains would affect a buyer's willingness to pay, hence justifying a complete reduction in value by the entire built-in capital gain.

The valuation context in this decision underscores the principle that tax liabilities play a crucial role in determining an asset's fair market value. By allowing a full reduction for built-in capital gains, the court aligned the valuation closer to the economic realities that a potential buyer would face in the event of a sale.

The other options, while related to valuation adjustments, do not reflect the legal precedent set by the Dunn case. Adjusting for market trends or future profit estimates does not capture the specific ruling regarding the treatment of built-in capital gains, which was the central element in this decision. The ruling made it clear that recognizing and adjusting for these gains was both permissible and necessary in valuing the property accurately.