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estate could be paid sooner if INI paid the estate a bonus in
lieu of petitioner’s paying the estate under the buy-sell
agreement. Petitioner told Thorpe during that conversation that
this proposal would eliminate a layer of taxation. In October
1984, Thorpe discussed petitioner’s proposal with Scanlon-Hull,
who told him that petitioner’s proposal was illegal and would
give rise to adverse tax consequences to Burke’s estate. Thorpe
relayed this information to petitioner who then called Scanlon-
Hull to voice his disagreement.
Burke’s nondisclosures with respect to his life insurance
application, which led Mutual Life to revoke the policy, caused
petitioner to feel that he had been denied the benefit of his
bargain under the buy-sell agreement. Out of a misperceived
moral obligation to provide Burke’s heirs with the $150,000 to
which they thought they were entitled, and the desire to become
sole owner of INI at the least tax cost, without having received
the life insurance proceeds, petitioner resolved to pay the heirs
$150,000 and acquire ownership of Burke’s stock in INI.
Petitioner proposed to Thorpe and the estate that INI would pay
the estate a $100,000 bonus and petitioner would be relieved of
$100,000 of his obligation under the buy-sell agreement. Under
petitioner’s proposal, the estate would receive $150,000, but
petitioner hoped to obtain a deduction for INI and to shield
himself from having to include in income a constructive dividend
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