Estate of George C. Blount, Deceased, Fred B. Aftergut, Executor - Page 72

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          interest in the remainder shifts from a value of $250,000                   
          preredemption to a value of $500,000 postredemption.                        
               The error with respect to B’s shares in the example lies in            
          the treatment of X’s redemption obligation as a claim on                    
          corporate assets when valuing the very shares that would be                 
          redeemed with those assets.  With respect to A’s shares, a                  
          willing buyer would pay $500,000 upon B’s death (not $250,000)              
          because he would take account of both the liability arising from            
          X’s redemption obligation and the shift in the proportionate                
          ownership interest of A’s shares occasioned by the redemption--             
          but never the former without the latter.36                                  
               The estate’s reliance on Estate of Cartwright v.                       
          Commissioner, 183 F.3d 1034 (9th Cir. 1999), is misplaced, as               
          that case is distinguishable.  Estate of Cartwright involved a              
          law firm (organized as a C corporation) that entered into a buy-            
          sell agreement with its majority shareholder.  The parties agreed           
          that the firm would purchase from the shareholder’s estate his              
          shares and his interest in the fees for the firm’s work in                  

               36 In this simplified example, a willing buyer of A’s shares           
          would pay $500,000 for A’s shares whether the redemption                    
          obligation existed or not.  But that is only because, in this               
          example, X is obligated to redeem B’s shares at their fair market           
          value of $500,000.  If X were obligated to redeem B’s shares at a           
          price greater or less than $500,000, then a willing buyer of A’s            
          shares would pay less than $500,000, or more than $500,000,                 
          respectively, for A’s shares.                                               

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