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augmenting the value of its stock, on the grounds that the
insurance proceeds were offset by the firm’s obligation to pay
them over to the estate. In so concluding, we relied on Estate
of Huntsman v. Commissioner, 66 T.C. 861 (1976), as follows: “We
said in Estate of Huntsman that a buyer would not pay more for
stock based on the corporation’s ownership of life insurance if
the proceeds would be largely offset by the corporation’s
liabilities. That is the case here.” Estate of Cartwright v.
Commissioner, T.C. Memo. 1996-286 (citation omitted). The Court
of Appeals for the Ninth Circuit affirmed our position that the
life insurance proceeds would not be considered by a hypothetical
willing buyer in these circumstances. Estate of Cartwright v.
Commissioner, 183 F.3d at 1038.
Estate of Cartwright is distinguishable. The lion’s share
of the corporate liabilities in that case which were found to
offset the insurance proceeds were not obligations of the
corporation to redeem its own stock. Rather, we determined that
approximately $4 million of the $5 million liability of the
corporation was to compensate the decedent shareholder for
services; i.e., for his interest in work in progress. Thus, a
substantial portion of the liability was no different from any
third-party liability of the corporation that would be netted
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