Buy-Sell Agreement Requirement

Planning tip: Ask for an opinion on whether an agreement is comparable to industry standards. The taxable person bears the burden of proof that an agreement complies with that standard. When a practitioner is involved in the preparation of a purchase/sale contract, he or she recommends that an independent expert be consulted to verify whether the valuation method used establishes an FMV for participation in the business or other real estate valued under the agreement. An evaluation formula developed with the services of an independent professional expert is more easily accepted by the IRS than a formula based on book value or another arbitrary factor. The capital gain can be minimized for purchases in the event of death. The transfer of shares held by one shareholder to other shareholders under a cross purchase agreement is treated as a sale or exchange of assets. . . .

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