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continue to operate so that Billy Hughes would have a place to
work; (2) McBride conducted business in the same way that Bob
Hughes did; (3) owners of small businesses typically operate
other than at arm’s length; and (4) James McBride advised McBride
about fiduciary obligations.
Those points do not convince us that the stock subscription
agreement was bona fide. McBride’s engaging in conduct similar
to that of Bob Hughes does not show that the stock subscription
agreement was at arm’s length or bona fide without a showing that
Bob Hughes always acted at arm’s length when dealing with his
related entities. In addition, whether or not the related
entities dealt with each other at arm’s length, section
2053(c)(1)(A) provides that the estate is not allowed a deduction
in this case unless the claim against the estate was contracted
bona fide and for adequate and full consideration. We have no
reason to question McBride’s intent to act properly or the
quality of the legal advice he received; however, that does not
determine whether the stock subscription was at arm’s length.
The following facts show that the stock subscription
agreement, made on April 29, 1997, was not bona fide: (1) The
terms of the stock subscription agreement were not negotiated at
arm’s length; (2) Advance Leasing’s business was not appraised,
and Advance Leasing had annual net losses and a negative net
worth in 1996, 1997, and 1998 both before and after the April 29,
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