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2. Regulatory Authority and Interpretive Rulings
In 1958, the Treasury issued final regulations under section
2031, concerning the valuation of stocks and bonds for estate tax
purposes, applicable to estates of decedents dying after August
16, 1954. See sec. 20.2031-2, Estate Tax Regs. In particular,
section 20.2031-2(h) addresses the valuation of securities owned
by a decedent at death subject to an option or contract to
purchase held by another person. See sec. 20.2031-2(h), Estate
Tax Regs. The regulation states that the effectiveness of the
agreement to determine the value of securities for estate tax
purposes depends on the circumstances of the case. See id. For
instance, the option or contract price is accorded little weight
if it did not bind the decedent equally during life and at death.
See id. The regulation further states:
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
shares to the natural objects of his bounty for less
than an adequate and full consideration in money or
money’s worth. [Id.; emphasis added.]
Although the regulation as a whole, and this subsection in
particular, have been subsequently amended, the changes do not
affect the cases at hand.28 Cases applying the regulation have
28Sec. 20.2031-2, Estate Tax Regs., was amended June 14,
1965 by T.D. 6826, 1965-2 C.B. 367; Apr. 26, 1974 by T.D. 7312,
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