Opinion ID: 77120
Heading Depth: 3
Heading Rank: 1

Heading: The Binding During Life Requirement

Text: 22 In order to qualify for the exception to the general rule that stock be valued at its fair market value, the restrictive agreement must be binding during the life of the decedent. See Treas. Reg. § 20.2031-2(h). The 1981 agreement provided that it could only be modified by the parties thereto. Exh. 14-J at 6. Thus, by the time the 1996 agreement was consummated, the only remaining parties were BCC and Blount. Blount owned an 83% interest in BCC, was the only person on BCC's board of directors, and was the president of the company. The only parties to the contract who were needed to change it were Blount and BCC, an entity that he completely controlled. 23 The Taxpayer argues that the ESOP's approval was required and was given by the ESOP's later consent. The ESOP, however, was not a party to the stock-purchase agreement, and its consent was not necessary to modify that contract. The ESOP, as a shareholder of BCC, had to be notified of any transfer or sale of an interest in BCC, but the 1996 agreement did not transfer or sell any interest, so the ESOP's approval was not required. Blount essentially had the unilateral ability to modify the 1981 agreement during his life, and, in fact, he did modify it during his life. The 1981 agreement, therefore, does not meet the exception to the general rule, and the value of the shares in Blount's estate must be determined using a fair-market valuation per I.R.C. § 2703.