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receive on decedent’s death and BCC’s $4 million obligation to
redeem decedent’s shares, as set forth in the Modified 1981
Agreement. Mr. Fodor excluded both the insurance proceeds and
the redemption obligation when determining BCC’s value on the
theory that the insurance proceeds were offset by the redemption
obligation. In contrast, Mr. Hitchner included the insurance
proceeds in valuing BCC, adding their value to his $7 million
“concluded” value for BCC, while disregarding the redemption
obligation.
Respondent argues that the insurance proceeds must be
included in BCC’s value as a nonoperating asset, relying on
section 20.2031-2(f), Estate Tax Regs., and Estate of Huntsman v.
Commissioner, 66 T.C. 861 (1976). In contrast, the estate argues
that, while insurance proceeds might be a nonoperating asset,
under Estate of Cartwright v. Commissioner, 183 F.3d 1034 (9th
Cir. 1999), affg. in part and remanding in part T.C. Memo. 1996-
286, they must be offset by BCC’s obligation to redeem decedent’s
shares, and therefore do not affect BCC’s value.
Estate of Huntsman makes clear that insurance proceeds are
treated like any other nonoperating asset when determining a
closely held corporation’s value. Estate of Huntsman v.
Commissioner, supra at 874; see also sec. 20.2031-2(f), Estate
Tax Regs. (“consideration shall also be given to nonoperating
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