Based Underground is now a conservative news aggregator AND curated newsletter.
(The Epoch Times)—The Supreme Court ruled unanimously in favor of the IRS on June 6 in a dispute over tax on shareholders’ life insurance policies.
Justice Clarence Thomas wrote the court’s 9–0 decision in Connelly v. Internal Revenue Service. The case concerns two brothers’ closely-held corporation. After one of the brothers died, tax authorities and the estate did not agree on the value of the stock.
Closely-held corporations commonly enter into agreements that require the redemption of a shareholder’s stock after the shareholder dies to preserve the closely held nature of the business. Under such routine estate-planning devices, corporations that enter into such agreements purchase life insurance on the shareholder to make sure the transaction is funded.
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 appeal of Thomas Connelly, executor of the estate of the late Michael Connelly, was rejected by the U.S. Court of Appeals for the 8th Circuit in June 2023.
The IRS said the estate owed close to $1 million after it found that St. Louis-based Crown C Corporation, a building materials business, failed to report life insurance proceeds after Michael Connelly died in 2013.
Michael Connelly, who was president and CEO of the corporation when he died, owned 77.18 percent of the company’s shares, while Thomas Connelly owned 22.82 percent.
The executor filed an estate tax return reporting the value of his late 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 IRS determined that the life insurance proceeds needed to be included in the valuation of the corporation, which meant the company had a value of $6.8 million at the date of death. The IRS found that the estate owed an additional $890,000. The estate paid the amount and then sued the tax agency in federal court in Missouri.
The Supreme Court examined whether a life insurance policy obtained to finance the company’s repurchase of the late co-owner’s shares should be factored into the valuation of the stock.
The estate argued the stock should not be taxed because the proceeds were to be used to repurchase the outstanding shares. 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.
The case concerns an important question of federal tax law on which the federal courts of appeal disagree, according to the surviving brother’s petition.
Under the Internal Revenue Code, when an individual dies that person’s 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.
“In many cases, fair market value can be determined through a straightforward analysis of public markets. But when a particular type of asset is not freely traded, fair market value must be determined on the basis of assessment and evaluation,” the petition states.
“Under applicable Treasury regulations, life-insurance proceeds payable to a corporation may be relevant to determining the value of a decedent’s stock in the corporation in some circumstances but not others.”
“The question presented is whether the proceeds of a life-insurance policy taken out by a closely held corporation on a shareholder in order to facilitate the redemption of the shareholder’s stock should be considered a corporate asset when calculating the value of the shareholder’s shares for purposes of the federal estate tax.”
In his new opinion, Justice Thomas recounted that the Connelly brothers entered into an agreement to make sure the company would stay in the family if either brother passed away. In that pact, the corporation could be forced to purchase the deceased brother’s shares.
To finance this possible share redemption, the corporation took out life insurance on each brother. After Michael Connelly died, there was a dispute over how to value his shares for calculating the estate tax.
“The central question is whether the corporation’s obligation to redeem Michael’s shares was a liability that decreased the value of those shares. We conclude that it was not and therefore affirm” the decision of the 8th Circuit, Justice Thomas wrote.
The justice explained that when Michael Connelly died, the corporation was worth almost $4 million and the family valued his shares at about $3 million. But the tax agency took the view that the corporation’s value was closer to $7 million because of the $3 million in insurance proceeds. This made the decedent’s shares worth a little over $5 million.
“Because a fair-market value redemption has no effect on any shareholder’s economic interest, no willing buyer would have treated [the] obligation to redeem … as a factor that reduced the value of those shares,” Justice Thomas wrote.
Crown C Corporation’s “contractual obligation to redeem Michael’s shares did not diminish the value of those shares.
Survival Beef on sale now. Freeze dried Ribeye, NY Strip, and Premium beef cubes. Promo code “jdr” at checkout for 25% off! SpreelyBeef.com
“[R]edemption obligations are not necessarily liabilities that reduce a corporation’s value for purposes of the federal estate tax[,]” the justice wrote for the court.
Mysterious “Skyquakes” Are Causing Strange “Booms” in the Sky, and Scientists Have No Explanation
by Michael Snyder
(End of the American Dream)—What is causing the extremely loud “booms” that people are hearing in the sky all over the world? We are being told that “skyquakes” are responsible, but scientists have no idea why these “skyquakes” are occurring. In some cases, the “skyquakes” cause such powerful shaking that…
The Biggest Sale on Long-Term Storage Beef EVER
by Sponsored Post
Let’s cut to the chase. Prepper All-Naturals is offering an unprecedented 40% off for it’s “Beef Steak” survival bags with promo code “steak40”. With a 25-year shelf life and a single ingredient (beef, of course), our most popular product is available for a very limited time with the biggest discount…
Seattle Is Ordered to Stop Blocking Illegal Alien Deportations in the Most Hilarious Court Decision Ever
by PJ Media
A federal court has just pooped in the oatmeal of the West Coast, Messed Coast™governors and local election officials suffering from acute cases of Trump Derangement Syndrome who think they can stop illegal alien deportations. And after this hilarious and thorough legal takedown from the 9th Circuit Court of Appeals,…
Illegal Alien Terror Suspect Found Dead in Cook County Jail Cell
by Slay News
An Islamic illegal alien has been found dead in his jail cell after being arrested on terrorism charges. According to CWBChicago, 22-year-old Sidi Mohamed Abdallahi was found dead at the Cook County jail in Illinois on Saturday. Abdallahi was arrested on felony terrorism and hate crime charges in October. He…
Trump’s Wild Bunch Is Ready for Action
by Frank Miele
If for no other reason than that it will elicit fear in the hearts of autocracy-phobics, I propose that Donald Trump’s second-term Cabinet be known as “The Wild Bunch.” The name is best known as the title of Sam Peckinpah’s classic 1969 western featuring a colorful cast of aging outlaws…
FAA Issues Flight Restrictions Over Questionable Drone Activity Near Trump’s Bedminster Golf Course
by Just The News
The Federal Aviation Administration (FAA) on Tuesday said that it has issued two flight restrictions on the area surrounding President-elect Donald Trump’s Bedminster golf club in New Jersey, following questionable drone activity. The drone sightings were first reported on Nov. 18, but have continued into this week, according to Fox…
Ex-FBI Agent Convicted for Stealing From Jan 6 Defendant During Raid
by Trending Politics
A former Houston-based FBI agent has been convicted of stealing valuables and cash while conducting searches. In one instance, the agent stole cash and silver bars from a non-violent January 6 defendant’s home. Nicholas Anthony Williams, 36, was indicted on January 31 in the Southern District of Texas. Williams, who…
Democrats, Media Elite Urge Biden to Pardon Trump’s Alleged ‘Enemies List’
by Breitbart
President Joe Biden should issue preemptive pardons to his political allies and those deemed to be on President-elect Donald Trump’s alleged “enemies list,” Democrats and their media allies believe. Delivering a preemptive pardon indicates an admission of guilt, although Democrats claim a preemptive pardon would only be intended to block…
Fani Willis Forced to Release All Communications With Jack Smith, J6 Committee
by Trending Politics
The Fulton County Superior Court has ruled against District Attorney Fani Willis, ordering her to disclose communications with Special Counsel Jack Smith and the House January 6 Committee. The decision, announced on Tuesday, follows a lawsuit brought by Judicial Watch, a conservative watchdog group, which accused Willis of violating Georgia’s…
Lindsey Graham Is the Warmongering NeoCon Leading the Charge to Upend Pete Hegseth
by JD Rucker
Pete Hegseth represents a shift away from the wokeness that has infected the United States military. This is possibly the biggest reason President-Elect Donald Trump tapped him to be the next Secretary of Defense and the vast majority of Republicans on Capitol Hill can support this, at least for the…
‘Where Are Black Democrats?’: Charles Payne Tells Personal Story to Call Out ‘Huge Double Standard’ of Biden Family
by Nicole Silverio, DCNF
(DCNF)—Fox Business host Charles Payne called out the alleged “huge double standard” of President Joe Biden’s family Tuesday by revealing that his brother, who struggles with a crack addiction, is currently serving a jail sentence. Payne said his brother, who is getting out of jail on Friday, is likely one…
Zelensky Admits Ukraine Can’t Retake All Its Land: ‘We Must Seek Diplomatic Means’
by Breitbart
Ukrainian President Volodymyr Zelensky conceded in an interview on Tuesday that Ukraine does not have “enough forces” to restore sovereignty over Russian-occupied Crimea and “must seek diplomatic means” to end the Russian invasion and regain its land. The state-run Ukrinform outlet reported that Zelensky described Crimea – which Russia colonized…
Ultra-Processed Foods: How Bad Are They for Your Health?
by Olivia Cook
(Natural News)—Despite the serious health risks associated with eating junk food, they remain the most consumed food products in many countries, particularly developed ones. But a review published in The BMJ, which studied 9.8 million people, warns that eating a lot of ultra-processed foods can increase your risk for 32 diseases. Among these are heart…
“Already Pretty Far Down the Line”: The Container Store Could File for Bankruptcy as Soon as Next Year
by Tyler Durden, Zero Hedge
(Zero Hedge)—As the retail apocalypse that started with Amazon and e-commerce continues, the latest victim is The Container Store. The retail giant could file for bankruptcy as soon as next year, according to the New York Post, who said the retailer is blaming its recent descent on “a weak housing…
Mysterious ‘Car-Sized Drones’ Over New Jersey Prompt FBI Investigation
by Zero Hedge
Several weeks of mysterious drone swarms over the skies of one New Jersey county near the military research and manufacturing facility Picatinny Arsenal have sparked concerns among residents and prompted an FBI investigation. “It’s kind of unsettling,” Mike Walsh, a Morris County resident who has spotted the drones on numerous…
UNESCO’s New Mission: Train Influencers About Combatting Online “Misinformation”
by Reclaim the Net
The UN Educational, Scientific and Cultural Organization (UNESCO) is now incorporating teaching influencers how to “fact check” into its activities. UNESCO claims that influencers have become “primary sources of news and cultural information” around the world – which prompted it to carry out a survey into how these online personalities…
