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Agreement is subject to section 2703. See OBRA sec. 11602(e);
sec. 25.2703-2, Gift Tax Regs.
2. Section 2703(b)(3)
Section 2703(a) provides that in general any agreement or
right to acquire property at a price less than its fair market
value will be disregarded in valuing the property for Federal
estate tax purposes. Section 2703(b) creates an exception to the
operation of section 2703(a), as follows:
SEC. 2703. CERTAIN RIGHTS AND RESTRICTIONS DISREGARDED.
(b) Exceptions.--Subsection (a) shall not apply to any
option, agreement, right, or restriction which meets each of
the following requirements:
(1) It is a bona fide business arrangement.
(2) It is not a device to transfer such property
to members of the decedent’s family for less than full
and adequate consideration in money or money’s worth.
(3) Its terms are comparable to similar
arrangements entered into by persons in an arms’ length
transaction.
The estate contends that, in the event section 2703(a)
applies to the Modified 1981 Agreement, all three requirements of
section 2703(b) have been met. Respondent disagrees. For the
reasons set forth below, we agree with respondent.
With respect to the requirement of section 2703(b)(2), the
beneficiaries of a below-market redemption of decedent’s BCC
shares were the remaining BCC shareholders, namely the ESOP
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