Disclaimer: When a purchase/sale agreement between related parties sets a formula purchase price for the interests of a deceased member, resulting in a value lower than the value ultimately allowed for inheritance tax purposes (because the requirements of Article 2703 have not been met), the heirs receive the lowest amount for their interest, while the value of estate tax is based on the highest amount. A buy/sell contract is usually structured in two ways – as a cross-sale or withdrawal contract. The law and regulations are silent on the details of this requirement. It appears that the requirement is met if it can be demonstrated that the purpose of the purchase/sale agreement is to maintain continuity of administration and family control (Estate of Lauder, T.C Memo. 1992-736). The business reasons for the performance of the contract must be well documented (e.g. B in written correspondence between practitioner and client). In addition, the Finanzgericht decided that planning the future liquidity requirements of the deceased`s estate was considered a bona foi objective (Estate of Amlie, T.C Memo. 2006-76). However, the Finanzgericht (confirmed by the Eighth Circuit) held that an enterprise consisting exclusively of negotiable securities was not a bona fide business agreement (Holman, 130 T.C 170 (2008), aff`d, 601 F.3d 763 (8th Cir. 2010)). Sale/sale contracts and portability restrictions are useful for determining how a member`s interests are valued for transfer tax purposes, and the owners are bound by the terms of the agreement.
Possible methods for determining the value of a stake in the property (i.e.: The purchase/sale price) as part of a purchase/sale agreement includes (1) a fixed price per unit; (2) require an independent assessment; or (3) the use of a formula. The authors recommend that the chosen method determine the fair value (FMV) of the interest at the time of sale, net of any applicable reduction. A fixed price at the time of the contract is not appropriate for transfer tax purposes (Bommer Revocable Trust, T.C. Memo. 1997-380). An agreement is considered to meet all these requirements when more than 50% of the value of the property subject to the restriction is held directly or indirectly by persons who are not part of the family of the despised (Regs). Section 25.2703-1(b)(3)). This only applies if the shares of non-family members are subject to the same restrictions as the publisher`s ownership. Among the family members of the contemptuous are the spouse of the barker, the ancestor of the barker or the spouse of the contemptuous, as well as any other person who is a natural object of price of the contemptuous.
The law and regulations do not specify who is a natural object of price of the contemptuous, so it is not known whether siblings and cousins are automatically covered by this definition. (Gloeckner`s Second Circle found that a person without blood or marital relationship is not the natural object of the deceased`s reward, unless his relationship is so close that he appears to have been related.) This finding is based on the relevant facts and circumstances. In general, a long-time personal friend is treated as an unrelated person….