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�20.2031(h) [sic] for support, those which do discuss it support
the position that the option price affects the value of the gross
estate only if the option was granted at arm’s length.” In
Bensel v. Commissioner, 36 B.T.A. at 253-254, the adequacy of
consideration test was met when the agreement was entered into
because “the price agreed upon between the father and son was not
too low. That is, it was not lower than the price at which
persons with adverse interests dealing at arm’s length might have
been expected to have agreed.” Similarly, in Estate of Carpenter
v. Commissioner, T.C. Memo. 1992-653, we held that a book value
price was reasonable (i.e., adequate and full) because it was the
result of arm’s-length negotiations conducted at the time the
buy-sell agreement was created.
An instructive articulation of the adequacy of consideration
test was presented in Lauder II, 64 T.C.M. (CCH) 1643, 1660, 1992
T.C.M. (RIA) par. 92,736, at 92-3733 through 92-3734, in which we
stated:
Notably, the phrase “adequate and full considera-
tion” is not specifically defined in section 20.2031-
2(h), Estate Tax Regs. In defining the phrase, we
begin with the proposition that a formula price may
reflect adequate and full consideration notwithstanding
that the price falls below fair market value. See,
e.g., Estate of Reynolds v. Commissioner, 55 T.C. 172,
194 (1970). In this light, the phrase is best
interpreted as requiring a price that is not lower than
that which would be agreed upon by persons with adverse
interests dealing at arm’s length. Bensel v.
Commissioner, supra. Under this standard, the formula
price generally must bear a reasonable relationship to
the unrestricted fair market value of the stock in
question.
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