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Supreme Court hears Connolly v. United States over whether life‑insurance funded buy‑sell redemptions raise estate tax value
Summary
At oral argument in Connolly v. United States, advocates disputed whether life‑insurance proceeds that fund mandatory buy‑sell redemptions should be counted in corporate net worth for valuing a decedent's shares under the federal estate tax. Petitioners warned of double taxation; the state urged arithmetic and market principles support including the proceeds.
The Supreme Court heard argument on Connolly v. United States, No. 23146, a dispute over whether life‑insurance proceeds used to fund a contractual buy‑sell redemption of stock should increase the value of a decedent's shares for federal estate tax purposes.
Petitioner counsel, Mister Shanmugam, told the justices that many closely held corporations insure shareholders and agree to redeem shares on a shareholder's death and that, under the relevant Internal Revenue Code provisions and Treasury regulations, a hypothetical willing buyer would not treat the insurance proceeds as increasing the value of the stock because those proceeds are offset by the contractual obligation to redeem. "The government's approach would lead to a grossly inflated valuation of the decedent's shares and it would effectively lead to double taxation," Shanmugam said, arguing that treating the proceeds as corporate net worth would tax the same economic benefit twice.
Shanmugam urged the court to apply standard valuation practice that looks to the company's net worth…
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