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of the underlying assets because the True family had no plans to
liquidate the True companies. Petitioners argue on brief:
book value likely would not have represented the fair
market value of * * * [True Oil’s and Belle Fourche’s]
assets upon liquidation. If the price under a buy-sell
agreement * * * [were] the fair market value of the
business in liquidation, then one of the primary
purposes of a buy-sell agreement would be undermined.
Since the primary business purpose of a buy-sell
agreement is continuation of the business by its
current owners, the agreed price likely will not equate
to the value of the business in liquidation. * * *
At the same time, they argue that because True Oil’s and Belle
Fourche’s tax book values equaled fair market values at the
agreement dates, this is strong evidence that tax book value was
a fair price.
To the contrary, respondent argues (citing St. Louis County
Bank v. United States, supra) that the reasonableness of the
formula price should be analyzed both at the date of agreement
and at later dates to determine whether the agreement was a
testamentary substitute. If the buy-sell agreement’s formula
could be expected to minimize the transfer price, this would
indicate an intent to transfer the interest for less than
adequate and full consideration. We agree.
As we stated in Lauder II, adequate and full consideration
requires a formula price (1) to be comparable to that which would
be negotiated by persons with adverse interests dealing at arm’s
length and (2) to bear a reasonable relationship to the
unrestricted fair market value of the interest in question.
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