Pre-1990 Buy-Sell Agreements Not Subject to Code § 2703

Arecent private letter ruling issued by the IRS verifies that buy-sellagreements entered into before October 8, 1990 are not subject to InternalRevenue Code § 2703. 

Code§ 2703 “restricts the ability of a buy-sell agreement to control estate taxvalues in a closely held entity.”  Theseolder agreements are not subject to § 2703 as long as they are not “substantiallymodified.”  Certain changes that are notviewed as substantial modifications include extending repayment terms andadjusting option prices to more closely approximate fair market value.  Even though older agreements may not besubject to Code § 2703, they “still must meet the requirements of Treas. Reg. §20.2031-2(h), Rev. Rul. 59-60, 1959-1 CB 237, and applicable case law beforethe purchase price provided therein will control for federal estate taxvaluation purposes.”

See Charles Rubin,Grandfathered Buy-Sell Agreements,Rubin on Tax, Apr. 7, 2013.