Estate of George C. Blount, Deceased, Fred B. Aftergut, Executor - Page 48

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          that the terms of the Modified 1981 Agreement are comparable to             
          similar agreements entered into by persons at arm’s length, as              
          required by section 2703(b)(3).                                             
               Section 2703(b)(3) provides that the terms of a buy-sell               
          agreement must be “comparable to similar arrangements entered               
          into by persons in an arms’ length transaction.”  Section                   
          2703(b)(3) appears to contemplate a taxpayer’s production of                
          evidence of agreements actually negotiated by persons at arm’s              
          length under similar circumstances and in similar businesses that           
          are comparable to the terms of the challenged agreement.                    
               The legislative history supports this interpretation.  The             
          committee report from the Senate, where section 2703 originated,            
                    In addition, the bill adds a third requirement,                   
               not found in present law, that the terms of the option,                
               agreement, right or restrictions be comparable to                      
               similar arrangements entered into by persons in an                     
               arm’s length transaction.  This requires that the                      
               taxpayer show that the agreement was one that could                    
               have been obtained in an arm’s length bargain.  Such                   
               determination would entail consideration of such                       
               factors as the expected term of the agreement, the                     
               present value of the property, its expected value at                   
               the time of exercise, and the consideration offered for                
               the option.  It is not met simply by showing isolated                  
               comparables but requires a demonstration of the general                
               practice of unrelated parties.  Expert testimony would                 
               be evidence of such practice.  In unusual cases where                  
               comparables are difficult to find because the taxpayer                 
               owns a unique business, the taxpayer can use                           
               comparables from similar businesses.  [136 Cong. Rec.                  
               S15683 (daily ed. Oct. 18, 1990).]                                     

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