Supreme Court Holds Redemption Obligation Does Not Offset Value of Life Insurance Proceeds in Estate Tax Valuation.

The Supreme Court recently addressed the issue of whether life insurance proceeds must be included in the valuation of closely held corporate shares that were redeemed by the corporation. In the case of Connelly v. United States, two brothers had a buy-sell agreement where the surviving brother or the company could buy the deceased brother's shares. The company obtained life insurance on the brothers, and when the majority-interest brother died, his estate filed an estate tax return without including the value of the life insurance. The IRS audited the return and added the life insurance proceeds to the valuation of the corporation. The Supreme Court ultimately held that the value of the life insurance proceeds should not be offset by the redemption obligation, as a share redemption at fair market value does not affect any shareholder's economic interest. [Extracted from the article]