(i) A right or restriction is treated as comparable to similar arms-length transactions if “the right or restriction is one that could have been obtained in a fair bargain among unrelated parties in the same business dealing with each other at arms length.” §25.2703-1(b)(4). Whether the agreement is comparable requires consideration of such factors as the term of the agreement, market value, and adequacy of any consideration given in exchange for the rights.
(ii) Perhaps it can be said, where Shareholders are not related, the terms of a buy-sell agreement can be presumed to constitute a bona fide business arrangement and to be the result of arms-length negotiations, if the methodology for determining the purchase price is reasonable.
(iii) In TC Memo, 2004-116 (May 12, 2004) the Tax Court rejected the purchase price established under a Shareholders Agreement entered into by two brothers-in-law, each of whom owned 50% of a closely-held business. The Agreement provided for a right of first refusal during lifetime and required a purchase of the shares of a deceased shareholder at a price set by the Agreement. The decedent during his lifetime had acquired a controlling interest in the Company and had along with the Company changed the price and terms of a redemption at death. .”
(iv) In the , TC Memo 2006-76 (April 17, 2006) the decedent left her estate equally to her daughter and her two sons, but allocated a certain portion of her stock in First American Bank Group to a trust established for her son, Rod. In addition, Rod’s trust was given the right to buy the balance of the bank stock. The taxpayer became incapacitated and in 1991 her conservator entered into a Shareholders
Scca/99999.008/Doc#82/Speech for Lake County Estate Planning Council