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terms under which B would redeem D’s shares on D’s
death, but leaving unchanged the provision requiring
the consent of other shareholders for lifetime
transfers. The modified price was substantially below
the price that would have been payable pursuant to the
unmodified agreement. D died, and B redeemed his
shares as set forth in the modified agreement. D’s
estate reported the value of the shares D held at death
as equal to the price set forth in the modified
agreement.
Held: The modified agreement is disregarded for
purposes of determining the value of D’s shares for
Federal estate tax purposes because D had the
unilateral ability to modify the agreement, rendering
the agreement not binding during D’s lifetime, as
required by sec. 20.2031-2(h), Estate Tax Regs.
Held, further: Sec. 2703, I.R.C., applies to the
modified agreement because the 1996 modification, which
occurred after the effective date of sec. 2703, I.R.C.,
was a substantial modification.
Held, further: The modified agreement is also
disregarded under sec. 2703(a), I.R.C., because it
fails to satisfy sec. 2703(b)(3), I.R.C., which
requires that the terms of the agreement be comparable
to similar arrangements entered into by persons in an
arm’s-length transaction.
Held, further: Fair market value of D’s shares
determined.
R. Douglas Wright, Larry S. Pike, Alfred B. Adams, III,
and Sara L. Doyle, for petitioner.
Travis Vance, III, for respondent.
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