T.C. Memo. 2004-116
UNITED STATES TAX COURT
ESTATE OF GEORGE C. BLOUNT, DECEASED, FRED B. AFTERGUT, EXECUTOR,
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
agreement.
In 1996, without obtaining the ESOP’s consent, D
and B modified the agreement, changing the price and
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