Estate of George C. Blount, Deceased, Fred B. Aftergut, Executor - Page 1

                                 T.C. Memo. 2004-116                                  

                               UNITED STATES TAX COURT                                

                                    Petitioner v.                                     
                    COMMISSIONER OF INTERNAL REVENUE, Respondent                      

               Docket No. 540-02.               Filed May 12, 2004.                   
                    D and J each owned 50 percent of the outstanding                  
               shares of B corporation.  In 1981, D, J, and B entered                 
               into a buy-sell agreement restricting transfers of B’s                 
               stock both during the shareholders’ lifetimes and at                   
               death.  Lifetime transfers required the consent of the                 
               other shareholders.  At death, a shareholder’s estate                  
               was required to sell, and B was required to buy, the                   
               shareholder’s shares at a price set in the agreement.                  
               The agreement further provided that it could be                        
               modified only by the written consent of the parties to                 
               the agreement, which consisted of D, J, and B.  D and J                
               subsequently transferred shares to an employee stock                   
               ownership plan (ESOP) that B established.  J died, and                 
               B redeemed his shares pursuant to the agreement,                       
               leaving D and the ESOP as the only remaining                           
               shareholders, with D owning a controlling interest in                  
               B.  D and B were the only remaining parties to the                     
                    In 1996, without obtaining the ESOP’s consent, D                  
               and B modified the agreement, changing the price and                   

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