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(tracing the origins of the test through case law and
regulations). The first two prongs of the Lauder II test had
been addressed directly by the courts in the Wilson-Lomb line of
cases. However, after the issuance of section 20.2031-2(h),
Estate Tax Regs., the attention of the courts shifted to the last
two prongs, which had only been adverted to in some early cases.
a. Was Agreement Entered Into for Bona Fide
Business Reasons?
In several cases, courts considered whether parties had bona
fide business reasons for entering into buy-sell agreements. For
example, instituting a buy-sell agreement to maintain exclusive
family control over a business repeatedly have been found to be a
bona fide business purpose. See Estate of Bischoff v.
Commissioner, 69 T.C. 32, 39-40 (1977); Estate of Littick v.
Commissioner, 31 T.C. at 187; Lauder II; Estate of Seltzer v.
Commissioner, T.C. Memo. 1985-519; Estate of Slocum v. United
States, 256 F. Supp. 753, 755 (S.D.N.Y. 1966). In addition,
using buy-sell agreements to assure continuity of company
management policies and to retain key employees also has been
held to be bona fide business purposes. See Estate of Reynolds
v. Commissioner, 55 T.C. 172, 194 (1970); Bommer Revocable Trust
v. Commissioner, T.C. Memo. 1997-380. However, as we noted in
Lauder II: “legitimate business purposes are often ‘inextricably
mixed’ with testamentary objectives where * * * the parties to a
restrictive stock agreement are all members of the same immediate
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