After one of the brothers died, tax authorities and the estate didn't agree on the value of the stock.
The Supreme Court held that life insurance proceeds that will be used to redeem a decedent's shares must be included when calculating the value of those shares for purposes of the federal estate tax.
The executor filed an estate tax return reporting the value of his brother's shares as $3 million, but the IRS conducted an audit in which an accounting firm valued the shares at more than $3.8 million at the time of the brother's death.
The Supreme Court examined whether a life insurance policy obtained to finance the company's repurchase of the deceased co-owner's shares should be factored into the valuation of the stock.
The IRS countered that the shares were subject to tax based on the fair market value as measured by what they could be sold for when the co-owner died.
Under the Internal Revenue Code, when an individual dies, his or her estate is subject to federal estate tax calculated, based on the fair market value of the estate's holdings at the time of the death.
After Michael Connelly died, there was a dispute over how to value his shares for calculating the estate tax.
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