Tax Court Disallows Buy-Sell Agreement in Valuing Decedent’s Business Interest

The Tax Court has held that a buy-sell agreement was irrelevant in the valuing of closely held stock.  In the case, the owner / decedent held a controlling interest in the business.  His brother-in-law was also a part owner in the company.  Together the two had a buy-sell agreement restricting lifetime transfers and at death.  The agreement required THE COMPANY to buy the shares upon death.  This is known as a stock redemption agreement.The IRS refused to acknowledge the buy-sell agreement as the proper avenue to value the estate of the deceased.  The agreement was originally executed long before the decedent’s death and called for book value.  After the decedent’s death, the buy-sell was modified causing the sale price to be substantially lower than in the books.  This agreement was not allowed for valuation purposes. Points of Interest

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By: Basi & Basi at the Center for Financial, Legal and Tax Planning for Transworld M&A Advisors