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Supreme Court Decision Changes Business Valuations for Shareholders

ARTICLE | October 08, 2024

Authored by Vasquez + Company


The U.S. Supreme Court recently ruled on a significant business valuation issue in Connelly v. IRS, impacting the way closely held companies are valued for estate tax purposes. The Court determined that corporate-owned life insurance (COLI) proceeds should be treated as corporate assets when calculating the value of a deceased shareholder’s interest. This decision may complicate succession planning for many private companies.

Key Points:

  • COLI as an Asset: Life insurance proceeds used in a stock redemption under a buy-sell agreement should be included in the company’s valuation.
  • Impact on Valuations: This ruling may increase the taxable estate for deceased shareholders, leading to higher estate tax liabilities.
  • Succession Planning: Private companies may need to reassess buy-sell agreements and consider alternative structures, such as cross-purchase agreements, to avoid potential tax pitfalls.

For more details on how this decision could affect your business’s succession plans and estate tax strategies, read the full article here.

 


Our firm provides the information for general guidance only, and does not constitute the provision of legal advice, tax advice, accounting services, investment advice, or professional consulting of any kind. The information provided herein should not be used as a substitute for consultation with professional tax, accounting, legal, or other competent advisers. Before making any decision or taking any action, you should consult a professional adviser who has been provided with all pertinent facts relevant to your particular situation. This article is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding accuracy-related penalties that may be imposed on the taxpayer. The information is provided “as is,” with no assurance or guarantee of completeness, accuracy, or timeliness of the information, and without warranty of any kind, express or implied, including but not limited to warranties of performance, merchantability, and fitness for a particular purpose.

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