## Facts

- George C. Blount held a controlling interest in Blount Construction Company (BCC), a closely held Georgia road-construction corporation.
- BCC and its shareholders had a 1981 stock-purchase agreement restricting transfers and requiring BCC to buy a shareholder’s shares at death using an agreed price or, if none, a book-value formula.
- BCC later obtained company-owned life insurance on each shareholder to fund the contractual stock redemptions.
- After one shareholder died in 1996, BCC received approximately $3 million in insurance proceeds and redeemed that shareholder’s stock for slightly less than $3 million under the book-value mechanism.
- In 1996, after being diagnosed with terminal cancer and as BCC’s sole shareholder, Blount caused BCC to enter into a new agreement applicable at his death that set a fixed $4 million redemption price, removed prior adjustment mechanisms, and eliminated installment-payment options.
- Because Blount controlled BCC, he could unilaterally modify the agreement during life.
- At Blount’s death, BCC received about $3.1 million in insurance proceeds intended to fund the required redemption.
- The estate reported the value of Blount’s BCC shares using the $4 million contract price; the IRS asserted a higher value and treated the insurance proceeds as increasing BCC’s value.
- The Tax Court disregarded the 1996 agreement for estate-tax valuation and added the full insurance proceeds to BCC’s value when computing fair market value (FMV).
- The estate appealed.

## Issues

1. Whether the 1996 stock-purchase agreement satisfied the requirements of I.R.C. § 2703(b) (and related regulations) so that the $4 million contract price controlled the estate-tax value of the closely held stock.
2. Whether, in valuing BCC under an FMV approach, the corporation’s life-insurance proceeds should be added to corporate value without offset for BCC’s corresponding obligation to redeem the decedent’s shares.

## Decision

- The court affirmed the Tax Court’s conclusion that the 1996 agreement did not qualify under § 2703(b) to fix estate-tax value.
- The court reversed the Tax Court’s FMV computation to the extent it added the insurance proceeds without accounting for the offsetting redemption obligation.
- The case was remanded for recomputation of corporate value and resulting estate-tax value consistent with the required offset.

## Legal Principles

- For federal estate-tax purposes, property is generally valued at FMV at the date of death unless a qualifying exception applies.
- Under I.R.C. § 2703, restrictions or agreements affecting property value are disregarded unless the agreement is:
  - a bona fide business arrangement,
  - not a device to transfer property for less than full and adequate consideration, and
  - comparable to similar arm’s-length arrangements.
- Regulations require that a price be fixed or determinable and that the agreement be binding during life and at death; unilateral modifiability by a controlling owner weighs against qualification.
- In valuing closely held stock by reference to corporate FMV, a hypothetical willing buyer considers both assets and liabilities; insurance proceeds obtained to fund a mandatory redemption do not increase FMV to the extent they are offset by the redemption obligation.

## Conclusion

The Eleventh Circuit held that the decedent’s buy-sell agreement did not meet § 2703’s requirements to control estate-tax value, but that corporate-owned life-insurance proceeds used to fund a required redemption should not inflate corporate FMV without subtracting the matching redemption liability, and it remanded for recalculation.


Estate of Blount v. Commissioner, 428 F.3d 1338 (11th Cir. 2005)