Distributor's Link Magazine Fall 2024 / Vol 47 No 4
50 THE DISTRIBUTOR’S
50 THE DISTRIBUTOR’S LINK Roman Basi Roman Basi is the President of The Center for Financial, Legal & Tax Planning, Inc. Roman graduated from Milliken University obtaining a Bachelor’s of Science Degree with a minor in Psychology. He earned an MBA from Southern Illinois University with an emphasis in Accounting and recevied his JD degree from Southern Illinois University. Roman is a licensed CPA as well as being a licensed attorney in Illinois, Missouri and Florida and is in high demand for his expertise in financial, legal and tax matters. His areas of expertise include mergers and acquisitions, contracts, real estate law, tax and estate planning. Visit www.taxplanning.com or call The Center at 618-997-3436. CONNELLY VS. UNITED STATES: IMPACT ON COMPANY LIFE INSURANCE PROCEEDS AND BUY-SELL AGREEMENTS On June 6, 2024, the Supreme Court released its much-anticipated decision in Connelly v. United States. The court sided with the IRS and held that life insurance proceeds a corporation received to fund a share redemption agreement increased the corporation’s estate tax value, and the corporation’s obligation to redeem the shares was not a liability that decreased the corporation’s value. With the statement being held true, the value of a deceased shareholder’s shares must reflect the corporation’s fair value, including insurance proceeds meant to fund a redemption of shares. The Connelly’s, Michael, and Thomas, were two brothers who were sole shareholders in Crown. They established a buy-sell agreement funded by a companyowned life insurance policy. The intention of the buysell was to keep the corporation in the family. When either brother died, the surviving brother would have an option to purchase the deceased brother’s shares. If that option was declined, Crown would be obligated to purchase the shares, which Thomas Connelly did when his brother died in 2013. Per the buy-sell agreement, the corporation used the life insurance proceeds to redeem the shares. Michael’s estate filed a federal tax return that listed the value of his estate at million, the amount that Crown paid to redeem the shares. The IRS CONTRIBUTOR ARTICLE disagreed by saying that Crown’s redemption obligation did not include the life insurance proceeds. This went on to set Crown’s total value at .86 million based on the million and a .86 valuation of crown based on the redemption amount paid and Michael’s ownership percentage (77%) in Crown. This made Michael’s value in crown .3 million, resulting in an additional estate tax liability of 9,914. The Connelly decision impacts shareholders who use corporate owned life insurance to fund equity purchase and buy-sell agreements. This ruling by the Supreme Court resolved a split that was between the Tax Court and some Courts of Appeals. Business owners are going to have to consider: ¤ Reviewing Buy-Sell Agreements Make sure agreements are structured in the most tax efficient manner. CONTINUED ON PAGE 116
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