Connelly v. United States: What Are The Implications?

The case involves Crown C Supply Company, a closely held business, and took place in the U.S. Supreme Court.

The decision was issued on June 6, 2024. The events leading to the case date back to 2013, when Michael Connelly passed away.

The U.S. Supreme Court issued a ruling in the case of Connelly v. United States, involving brothers Michael and Thomas Connelly, who owned a building supply business, Crown C Supply Company.

The Court ruled that life insurance proceeds received by the company to redeem shares from a deceased shareholder must be included in the valuation of the company for estate tax purposes. This ruling upheld the IRS’s position, which increases the taxable value of the estate.

The ruling impacts how life insurance proceeds are treated in estate valuations, particularly for closely held businesses with buy-sell agreements. The Connelly brothers had a buy-sell agreement funded by life insurance to ensure business continuity, but the lack of proper valuation and adherence to the agreement’s terms led to a higher estate tax liability.

This ruling emphasizes the importance of regularly updating and adhering to buy-sell agreements to avoid adverse tax consequences. Business owners should consult with tax, legal, and financial advisors to ensure their agreements and valuations are current and comply with tax laws. The ruling suggests considering cross-purchase arrangements as an alternative to redemption agreements to potentially mitigate estate tax impacts.