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Each seller testified that the price was fair and that the sale
had been under no compulsion. The Court of Appeals for the Ninth
Circuit found that these two transactions satisfied the
requirements of an arm’s-length sale because (1) family
connections were not particularly close; (2) sellers were under
no compulsion to sell; (3) sellers had no reason to doubt an
independent valuation of the shares by a reputable firm; and (4)
there was evidence that there was no intention to make a gift to
the buyer. Petitioners cite each of these factors in support of
their position, while respondent contests each factor’s
application to this case.
We declined to extend Morrissey in McCord v. Commissioner,
120 T.C. 358 (2003), appeal docketed No. 03-60700 (5th Cir.
2003). However, McCord is distinguishable because the taxpayers
based the valuation of the stock on an assignment of a portion of
a partnership transferred by gift instead of on a previous sale
of the stock. The taxpayers, who were husband and wife, assigned
their partnership interests to their children and two nonprofit
organizations. The assignees, pursuant to the assignment
agreement, executed a confirmation agreement to divide the
interest amongst themselves. The interest was valued by an
appraiser retained by the children. The taxpayers, citing
Morrissey, argued that the confirmation agreement was conclusive
proof of the value of the gift interest because the agreement was
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