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buy or to sell and both having reasonable knowledge of relevant
facts.” Section 2031(b), in particular, addresses the valuation
of stock not listed on an exchange.
Courts have long held that, with respect to stock in a
closely held corporation, the price term in a restrictive buy-
sell or redemption agreement (a restrictive agreement) can fix
the value of the stock for Federal estate tax purposes. See May
v. McGowan, 194 F.2d 396, 397 (2d Cir. 1952); Lomb v. Sugden,
82 F.2d 166, 167-168 (2d Cir. 1936); Wilson v. Bowers, 57 F.2d
682, 683-684 (2d Cir. 1932). Since the above three cases were
decided, the courts have developed a set of requirements for
determining whether the price set forth in a restrictive
agreement controls for purposes of the Federal estate tax.
Recently, we summarized those requirements in Estate of Lauder v.
Commissioner, T.C. Memo. 1992-736:
It is axiomatic that the offering price must be fixed
and determinable under the agreement. In addition, the
agreement must be binding on the parties both during
life and after death. Finally, the restrictive
agreement must have been entered into for a bona fide
business reason and must not be a substitute for a
testamentary disposition. * * * [Citations omitted.]
Section 20.2031-2(b), Estate Tax Regs., embodies the three
elements of the Lauder analysis:
Even if the decedent is not free to dispose of the
underlying securities at other than the option or
contract price, such price will be disregarded in
determining the value of the securities unless it is
determined under the circumstances of the particular
case that the agreement represents a bona fide business
arrangement and not a device to pass the decedent’s
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