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experience in the construction business; and that Fred Jr.’s
brother testified credibly that when decedent entered into a
business venture, he was almost always in charge--all of which
tend to rebut Fred Jr.’s characterization of decedent’s role in
the enterprise as minimal.
On balance, we believe the evidence that the options were a
substitute for a testamentary device outweighs any evidence of
their bona fide business purpose. In an unusual circumstance, we
have the sworn testimony of the grantor-decedent himself as to
the options’ essentially testamentary purpose, as well as the
sworn testimony of the grantee to the same effect, albeit a
grantee who now testifies in changed circumstances that the
options had a bona fide business purpose.
Alternatively, petitioner argues that even if the option
provisions do not control the values of the partnership
interests, they nonetheless should be given “significant weight”
in determining the values of decedent’s interests. The
regulations state that the option price shall be “disregarded” in
determining the value of a business interest unless it is
determined that the option represents a bona fide business
arrangement and not a substitute for testamentary disposition.
Sec. 20.2031-2(h), Estate Tax Regs. Because we have determined
that the option provision represents a substitute for
testamentary disposition, the provision will be disregarded and
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