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progress at his death. The consideration for this purchase was
designated as the proceeds from two $2.5 million life insurance
policies on the shareholder’s life that the firm was required to
obtain under the agreement.
Upon the shareholder’s death, the firm paid the $5,062,02937
insurance proceeds to the shareholder’s estate. The taxpayer
took the position that the entire $5,062,029 was paid for the
shareholder’s stock, whereas the Commissioner determined that
approximately $4 million was paid for the shareholder’s interest
in work in progress (and, therefore, was income in respect of a
decedent). Concluding that the insurance proceeds were
consideration for both the stock and the shareholder’s interest
in work in progress, this Court undertook to allocate the
consideration between the two by determining the stock’s fair
market value at the shareholder’s death, and treating the
insurance proceeds in excess of that fair market value as
consideration paid for the shareholder’s interest in work in
progress. In determining the fair market value of the stock, we
rejected the taxpayer’s argument that the $5 million in insurance
proceeds should be treated as a nonoperating asset of the firm,
37 The policy proceeds that served as consideration for the
purchase were construed by the parties as comprising the two $2.5
million death benefits plus $62,029 in premium adjustments and
interest.
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