The Supreme Court agreed to consider a dispute involving the proper method for determining the value of hard-to-quantify life insurance payouts and whether they are considered corporate assets for the purpose of determining the federal taxable income of an estate.
The case granted Wednesday involves a closely-held corporation owned by two brothers. Following the death of one of the brothers, the estate and the IRS disagreed over the stock’s proper value—a split that is reflected in the intermediate federal appellate courts.
The petition was filed by Thomas A. Connelly, the executor of the estate of Michael P. Connelly, who is fighting a $1 million tax deficiency assessed on the estate by the IRS after it determined that Crown C Corp., a St. Louis building materials company the Connellys owned, failed to report life insurance proceeds it received after Michael’s death in 2013.
In particular, the justices agreed to resolve whether a life insurance policy intended to fund the company’s repurchase of the dead owner’s stock should be considered in the valuation of the stock.
The estate in its petition claimed it shouldn’t, because the funds are going to be immediately used up to repurchase the shares. The IRS said it should because that’s the fair market value of what someone would be willing to pay at the time of the death.
The case is Connelly v. United States, U.S., No. 23-146.