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1. Applicability of Section 2703
Section 2703 applies to agreements entered into or
substantially modified” after October 8, 1990. OBRA sec.
11602(e); sec. 25.2703-2, Gift Tax Regs. A “substantial
modification” for this purpose is further defined in section
25.2703-1(c)(1), Gift Tax Regs., which provides that
Any discretionary modification of a right or
restriction, whether or not authorized by the terms of
the agreement, that results in other than a de minimis
change to the quality, value, or timing of the rights
of any party with respect to property that is subject
to the right or restriction is a substantial
modification. * * *
The 1981 Agreement required BCC to purchase, and a deceased
shareholder’s estate to sell, the deceased shareholder’s BCC
shares at a price initially set at the book value of the shares
being redeemed. This price automatically adjusted each year to
reflect increases in book value. The 1981 Agreement allowed the
shareholders by agreement to set a different price annually on
August 1. Thus, any shareholder could preserve the book value
redemption price by refusing to agree to reset the price.
Assuming the parties did agree to change the purchase price on
August 1, absent further adjustment by agreement of the
shareholders, the new price would automatically adjust annually
on the basis of increases in BCC’s book value. BCC had the right
to pay for the redeemed stock in installments.
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