The conflict began when Michael Connelly died in 2013, and Thomas used $3.5 million in life insurance proceeds to fund a $3 million redemption of his brother’s 77% share in Crown, based in St. Louis. The IRS rejected the $3 million valuation on the estate’s tax return, asserting that the redemption obligation did not offset the insurance proceeds. The IRS valued Crown at nearly $6.9 million and claimed an additional $890,000 in taxes.
Affirmation by Lower Courts
After the estate paid the tax and challenged the IRS valuation, a Missouri federal court upheld the IRS’s position. The court stated that the payout increased the company’s fair market value and the family’s equity.
In June 2023, the Eighth Circuit affirmed this decision, ruling that Crown was not owed a tax refund. The circuit court reasoned that a hypothetical buyer could cancel the redemption obligation and benefit from the additional value.
Supreme Court’s Reasoning
The justices agreed with the government’s argument that the insurance payout used to redeem Michael Connelly’s shares increased the company’s value under the willing-buyer and willing-seller legal test. They emphasized that in a fair-market-value assessment, Crown’s value would include the life insurance proceeds.
