Magazine article The CPA Journal

Dickman Expanded to Cover Failure to Exercise Right of First Refusal

Magazine article The CPA Journal

Dickman Expanded to Cover Failure to Exercise Right of First Refusal

Article excerpt

The IRS keeps trying to expand the scope of the Dickman decision (465 U.S. 330, 1984) in which the Supreme Court ruled that interest-free loans resulted in taxable gifts. Recently, it has ruled in PLR 9117035 that a son made a gift to his father by failing to exercise a right of first refusal in a buy-sell 0 agreement.

The IRS considered the situation where father and son owned all of the stock of a corporation and were parties to a buy-sell agreement. The agreement set a current value and provided a right of first refusal at that value.

The father wished to sell some of his stock to an ESOP at $5,502 per share when the "current" value under the agreement was only $1,370 per share, and the son agreed not to exercise his right to purchase the stock at the current value. Citing Dickman, the IRS ruled that this transaction would constitute a gift because the son had an absolute right to acquire stock apparently worth $594,268. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.