Valuation and the Amlie Case

Prof. Wendy Gerzog (University of Baltimore School of Law) has recently posted her article entitled Amlie Feud on SSRN.  The article was originally published in 112 Tax Notes 877 (2006).
   

Here is the conclusion of her article:
   

In Blount it was evident that section 2703 would be applied to ignore, for valuation purposes, the restrictions in the contract. Not only did one party retain the unilateral right to change the terms of the buy-sell agreement, but the expert did not sufficiently value the company’s own stock or provide an adequate analysis of comparable agreements at arm’s length.
   

In Amlie the decision is a closer one. While the Tax Court may well be correct in its conclusion that the 1995 FSA price was a fair one, there are some troubling aspects to the case. The government’s argument that Rod was the only beneficiary of that agreement in that ‘‘it allowed him to purchase decedent’s stock at a price that had been found inadequate by the district court just a few months before’’ is persuasive: ‘‘Decedent received no consideration or benefit from the 1995 FSA, as she owned stock for which FABG was willing to pay $118.23 per share before the agreement, and after the agreement she owned stock that was to be sold for $118.23 per share to Rod.’’
   
There is something wrong with the assumption that feuding relatives mean arm’s-length dealings such that the terms of agreements between hostile family members are comparable to those between unrelated parties. There must be evidence that the family members acted like unrelated parties, such as hiring individual attorneys to represent their separate interests as well as employing their own experts to value the stock, before such an inference should be drawn from their enmity.