(Slip Opinion)              OCTOBER TERM, 2023                                       1

                                       Syllabus

         NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
       being done in connection with this case, at the time the opinion is issued.
       The syllabus constitutes no part of the opinion of the Court but has been
       prepared by the Reporter of Decisions for the convenience of the reader.
       See United States v. Detroit Timber & Lumber Co., 

.


SUPREME COURT OF THE UNITED STATES

                                       Syllabus

        CONNELLY, AS EXECUTOR OF THE ESTATE OF
            CONNELLY v. UNITED STATES

CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
                 THE EIGHTH CIRCUIT

       No. 23–146.     Argued March 27, 2024—Decided June 6, 2024
Michael and Thomas Connelly were the sole shareholders in Crown C
 Supply, a small building supply corporation. The brothers entered into
 an agreement to ensure that Crown would stay in the family if either
 brother died. Under that agreement, the surviving brother would have
 the option to purchase the deceased brother’s shares. If he declined,
 Crown itself would be required to redeem (i.e., purchase) the shares.
 To ensure that Crown would have enough money to redeem the shares
 if required, it obtained $3.5 million in life insurance on each brother.
 After Michael died, Thomas elected not to purchase Michael’s shares,
 thus triggering Crown’s obligation to do so. Michael’s son and Thomas
 agreed that the value of Michael’s shares was $3 million, and Crown
 paid the same amount to Michael’s estate. As the executor of Michael’s
 estate, Thomas then filed a federal tax return for the estate, which
 reported the value of Michael’s shares as $3 million. The Internal Rev-
 enue Service (IRS) audited the return. During the audit, Thomas ob-
 tained a valuation from an outside accounting firm. That firm deter-
 mined that Crown’s fair market value at Michael’s death was $3.86
 million, an amount that excluded the $3 million in insurance proceeds
 used to redeem Michael’s shares on the theory that their value was
 offset by the redemption obligation. Because Michael had held a
 77.18% ownership interest in Crown, the analyst calculated the value
 of Michael’s shares as approximately $3 million ($3.86 million x
 0. 7718). The IRS disagreed. It insisted that Crown’s redemption obli-
 gation did not offset the life-insurance proceeds, and accordingly, as-
 sessed Crown’s total value as $6.86 million ($3.86 million + $3 million).
 The IRS then calculated the value of Michael’s shares as $5.3 million
2                   CONNELLY v. UNITED STATES

                                 Syllabus

    ($6.86 million x 0. 7718). Based on this higher valuation, the IRS de-
    termined that the estate owed an additional $889,914 in taxes. The
    estate paid the deficiency and Thomas, acting as executor, sued the
    United States for a refund. The District Court granted summary judg-
    ment to the Government. The court held that, to accurately value Mi-
    chael’s shares, the $3 million in life-insurance proceeds must be
    counted in Crown’s valuation. The Eighth Circuit affirmed.
Held: A corporation’s contractual obligation to redeem shares is not nec-
 essarily a liability that reduces a corporation’s value for purposes of
 the federal estate tax.
    When calculating the federal estate tax, the value of a decedent’s
 shares in a closely held corporation must reflect the corporation’s fair
 market value. And, life-insurance proceeds payable to a corporation
 are an asset that increases the corporation’s fair market value. The
 question here is whether Crown’s contractual obligation to redeem Mi-
 chael’s shares at fair market value offsets the value of life-insurance
 proceeds committed to funding that redemption.
    The answer is no. Because a fair-market-value redemption has no
 effect on any shareholder’s economic interest, no hypothetical buyer
 purchasing Michael’s shares would have treated Crown’s obligation to
 redeem Michael’s shares at fair market value as a factor that reduced
 the value of those shares. At the time of Michael’s death, Crown was
 worth $6.86 million—$3 million in life-insurance proceeds earmarked
 for the redemption plus $3.86 million in other assets and income-gen-
 erating potential. Anyone purchasing Michael’s shares would acquire
 a 77.18% stake in a company worth $6.86 million, along with Crown’s
 obligation to redeem those shares at fair market value. A buyer would
 therefore pay up to $5.3 million for Michael’s shares ($6.86 million x
 0. 7718)—i.e., the value the buyer could expect to receive in exchange
 for Michael’s shares when Crown redeemed them at fair market value.
 Crown’s promise to redeem Michael’s shares at fair market value did
 not reduce the value of those shares.
    Thomas’s efforts to resist this straightforward conclusion fail. He
 views the relevant inquiry as what a buyer would pay for shares that
 make up the same percentage of the less-valuable corporation that ex-
 ists after the redemption. For calculating the estate tax, however, the
 whole point is to assess how much Michael’s shares were worth at the
 time that he died—before Crown spent $3 million on the redemption
 payment. See 

 (defining the gross estate to “include
 the value of all property to the extent of the interest therein of the
 decedent at the time of his death”). A hypothetical buyer would treat
 the life-insurance proceeds that would be used to redeem Michael’s
 shares as a net asset.
    Thomas’s argument that the redemption obligation was a liability
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                               Syllabus

  also cannot be reconciled with the basic mechanics of a stock redemp-
  tion. He argues that Crown was worth only $3.86 million before the
  redemption, and thus that Michael’s shares were worth approximately
  $3 million ($3.86 million x 0. 7718). But he also argues that Crown was
  worth $3.86 million after Michael’s shares were redeemed. See Reply
  Brief 6. Both cannot be right: A corporation that pays out $3 million
  to redeem shares should be worth less than before the redemption.
     Finally, Thomas asserts that affirming the decision below will make
  succession planning more difficult for closely held corporations. But
  the result here is simply a consequence of how the Connelly brothers
  chose to structure their agreement. Pp. 5–9.

, affirmed.

  THOMAS, J., delivered the opinion for a unanimous Court.
                         Cite as: 

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                              Opinion of the Court

      NOTICE: This opinion is subject to formal revision before publication in the
      United States Reports. Readers are requested to notify the Reporter of
      Decisions, Supreme Court of the United States, Washington, D. C. 20543,
      [email protected], of any typographical or other formal errors.


SUPREME COURT OF THE UNITED STATES
                                    _________________

                                    No. 23–146
                                    _________________


THOMAS A. CONNELLY, AS EXECUTOR OF THE ESTATE
 OF MICHAEL P. CONNELLY, SR., PETITIONER v.
              UNITED STATES
 ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
           APPEALS FOR THE EIGHTH CIRCUIT
                                   [June 6, 2024]

   JUSTICE THOMAS delivered the opinion of the Court.
   Michael and Thomas Connelly owned a building supply
corporation. The brothers entered into an agreement to en-
sure that the company would stay in the family if either
brother died. Under that agreement, the corporation could
be required to redeem (i.e., purchase) the deceased brother’s
shares. To fund the possible share redemption, the corpo-
ration obtained life insurance on each brother. After Mi-
chael died, a narrow dispute arose over how to value his
shares for calculating the estate tax. The central question
is whether the corporation’s obligation to redeem Michael’s
shares was a liability that decreased the value of those
shares. We conclude that it was not and therefore affirm.
                             I
                             A
  Congress has long imposed a tax “on the transfer of the
taxable estate of every decedent who is a citizen or resident
of the United States.” 

(a).1 A decedent’s
——————
  1 Not all estates are subject to the estate tax. Because certain credits

are allowed against the estate tax, any estate valued below a certain
2                 CONNELLY v. UNITED STATES

                         Opinion of the Court

“taxable estate” is the value of “all property, real or per-
sonal, tangible or intangible,” owned by the decedent “at the
time of his death,” minus applicable deductions. §§2031(a),
2051. Imposing the estate tax thus requires calculating the
value of the property in the decedent’s estate. In general,
the lodestar for that assessment is “fair market value,”
which “is the price at which the property would change
hands between a willing buyer and a willing seller, neither
being under any compulsion to buy or to sell and both hav-
ing reasonable knowledge of relevant facts.” 

.2031–1(b) (2021).
  A decedent’s taxable estate includes his shares in a
closely held corporation. 

(b). Closely held
corporations ordinarily have only a few shareholders (often
within the same family) and, unlike public corporations,
those shareholders typically participate in the corporation’s
day-to-day management. 3 J. Cox & T. Hazen, Law of Cor-
porations §14.1 (3d ed. 2010) (Cox & Hazen). Given this
close working relationship, shareholders sometimes enter
into an agreement to restrict the transfer of shares to out-
side investors. 3 id., §14.9. One such arrangement involves
“giving the corporation or the other shareholders the right
to purchase the shares of a holder on his death.” Ibid. A
related arrangement, called a share redemption agreement,
contractually requires a corporation to repurchase a de-
ceased shareholder’s shares. Although such an agreement
may delineate how to set a price for the shares, it is ordi-
narily not dispositive for valuing the decedent’s shares for
the estate tax. See 

. As a general rule, the
fair market value of the corporation determines the value
of the shares, and one must therefore consider “the com-
pany’s net worth, prospective earning power and dividend-


——————
threshold (today, about $13.6 million) is not subject to the tax. See 

(c).
                  Cite as: 

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                      Opinion of the Court

paying capacity, and other relevant factors,” “including pro-
ceeds of life insurance policies payable to . . . the company.”

.2031–2(f )(2).
                              B
   Brothers Michael and Thomas Connelly were the sole
shareholders in Crown C Supply, a small but successful
building supply corporation in St. Louis, Missouri. Michael
owned 77.18% of Crown’s outstanding shares (385.9 out of
500 shares), and Thomas owned the remaining 22.82%
(114.1 shares). The brothers entered into an agreement
with Crown to ensure a smooth transition of ownership and
keep Crown in the family in the event one of the brothers
died. The agreement provided that if either Michael or
Thomas died, the surviving brother would have the option
to purchase the deceased brother’s shares. And, if the sur-
viving brother declined to do so, then Crown itself would be
contractually required to redeem the shares. With an ex-
ception not relevant here, the agreement specified that the
redemption price for each share would be based upon an
outside appraisal of Crown’s fair market value. App. 12–
14. To ensure that Crown would have enough money to re-
deem the shares if required, Crown obtained $3.5 million in
life insurance on each brother.
   When Michael died in 2013, Thomas opted not to pur-
chase Michael’s shares. As a result, Crown was obligated
under the agreement to redeem Michael’s shares. Rather
than secure an outside appraisal of the company’s fair mar-
ket value (as the agreement contemplated), Michael’s son
and Thomas agreed in an “amicable and expeditious man-
ner” that the value of Michael’s shares was $3 million. 

at 25–26. Crown then used $3 million of the life-insurance
proceeds to redeem Michael’s shares, leaving Thomas as
Crown’s sole shareholder.
   As the executor of Michael’s estate, Thomas then filed a
federal tax return for the estate. The return reported the
4               CONNELLY v. UNITED STATES

                     Opinion of the Court

value of Michael’s shares as $3 million, in accordance with
the agreement between Michael’s son and Thomas. The In-
ternal Revenue Service (IRS) audited the return. During
the audit, Thomas obtained a valuation from an accounting
firm. The firm’s analyst took as given the holding in Estate
of Blount v. Commissioner, 

 (CA11 2005),
which concluded that insurance proceeds should be “de-
duct[ed] . . . from the value” of a corporation when they are
“offset by an obligation to pay those proceeds to the estate
in a stock buyout.” 

. The analyst thus excluded
the $3 million in insurance proceeds used to redeem Mi-
chael’s shares, and determined that Crown’s fair market
value at Michael’s death was $3.86 million. Because Mi-
chael held a 77.18% ownership interest, the analyst calcu-
lated the value of Michael’s shares as approximately $3 mil-
lion ($3.86 million x 0. 7718).
   The IRS took a different view, insisting that Crown’s re-
demption obligation did not offset the life-insurance pro-
ceeds. The IRS counted the $3 million in life-insurance pro-
ceeds excluded by the analyst and assessed Crown’s total
value as $6.86 million ($3.86 million + $3 million). And, the
IRS thus calculated the value of Michael’s shares as $5.3
million ($6.86 million x 0. 7718). Based on this higher valu-
ation, the IRS determined that the estate owed an addi-
tional $889,914 in taxes.
   The estate paid the deficiency and Thomas, acting as ex-
ecutor, sued the United States for a refund. As relevant,
Thomas argued that the $3 million in life-insurance pro-
ceeds used to redeem Michael’s shares should not be
counted when calculating the value of those shares. The
District Court granted summary judgment to the Govern-
ment, concluding that Michael’s estate was not entitled to
a refund. Connelly v. Department of Treasury, IRS, 

, *17 (ED Mo., Sept. 21, 2021). The court held
that the $3 million in life-insurance proceeds must be
counted to accurately value Michael’s shares. It explained
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                      Opinion of the Court

that, under customary valuation principles, Crown’s obliga-
tion to redeem Michael’s shares was not a liability that re-
duced the corporation’s fair market value. 

. The
court therefore held that Crown’s redemption obligation did
not offset the life-insurance proceeds. 

 at *15–*17. The
Court of Appeals affirmed on the same basis. Connelly v.
Department of Treasury, IRS, 

 (CA8 2023).
   We granted certiorari, 

 (2023), to address
whether life-insurance proceeds that will be used to redeem
a decedent’s shares must be included when calculating the
value of those shares for purposes of the federal estate tax.
We now affirm.
                               II
  The dispute in this case is narrow. All agree that, when
calculating the federal estate tax, the value of a decedent’s
shares in a closely held corporation must reflect the cor-
poration’s fair market value. And, all agree that life-
insurance proceeds payable to a corporation are an asset
that increases the corporation’s fair market value. The only
question is whether Crown’s contractual obligation to re-
deem Michael’s shares at fair market value offsets the value
of life-insurance proceeds committed to funding that re-
demption.
  Thomas argues that a contractual obligation to redeem
shares is a liability that offsets the value of life-insurance
proceeds used to fulfill that obligation. Brief for Petitioner
17. He accordingly contends that anyone purchasing “a
subset of the corporation’s shares would treat the two as
canceling each other out.” 

 By contrast, the Govern-
ment argues that Crown’s obligation to pay for Michael’s
shares did not reduce the value of those shares. It contends
that “no real-world buyer or seller would have viewed the
redemption obligation as an offsetting liability.” Brief for
United States 15. We agree with the Government.
  An obligation to redeem shares at fair market value does
6               CONNELLY v. UNITED STATES

                     Opinion of the Court

not offset the value of life-insurance proceeds set aside for
the redemption because a share redemption at fair market
value does not affect any shareholder’s economic interest.
A simple example proves the point. Consider a corporation
with one asset—$10 million in cash—and two shareholders,
A and B, who own 80 and 20 shares respectively. Each in-
dividual share is worth $100,000 ($10 million ÷ 100 shares).
So, A’s shares are worth $8 million (80 shares x $100,000)
and B’s shares are worth $2 million (20 shares x $100,000).
To redeem B’s shares at fair market value, the corporation
would thus have to pay B $2 million. After the redemption,
A would be the sole shareholder in a corporation worth $8
million and with 80 outstanding shares. A’s shares would
still be worth $100,000 each ($8 million ÷ 80 shares). Eco-
nomically, the redemption would have no impact on either
shareholder. The value of the shareholders’ interests after
the redemption—A’s 80 shares and B’s $2 million in cash—
would be equal to the value of their respective interests in
the corporation before the redemption. Thus, a corpora-
tion’s contractual obligation to redeem shares at fair mar-
ket value does not reduce the value of those shares in and
of itself.
   Because a fair-market-value redemption has no effect on
any shareholder’s economic interest, no willing buyer pur-
chasing Michael’s shares would have treated Crown’s obli-
gation to redeem Michael’s shares at fair market value as a
factor that reduced the value of those shares. At the time
of Michael’s death, Crown was worth $6.86 million—$3 mil-
lion in life-insurance proceeds earmarked for the re-
demption plus $3.86 million in other assets and income-
generating potential. Anyone purchasing Michael’s shares
would acquire a 77.18% stake in a company worth $6.86
million, along with Crown’s obligation to redeem those
shares at fair market value. A buyer would therefore pay
up to $5.3 million for Michael’s shares ($6.86 million x
0. 7718)—i.e., the value the buyer could expect to receive in
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                      Opinion of the Court

exchange for Michael’s shares when Crown redeemed them
at fair market value. We thus conclude that Crown’s prom-
ise to redeem Michael’s shares at fair market value did not
reduce the value of those shares.
   Thomas resists this straightforward conclusion. He sug-
gests that Crown’s redemption obligation “would make it
impossible” for a hypothetical buyer seeking to purchase
77.18% of Crown “to capture the full value of the insurance
proceeds.” Brief for Petitioner 26. That is so, according to
Thomas, because the insurance proceeds would leave the
company as soon as they arrived to complete the redemp-
tion. He argues that the “buyer would thus not consider
proceeds that would be used for redemption as net assets.”

 In other words, Thomas views the relevant inquiry as
what a buyer would pay for shares that make up the same
percentage of the less-valuable corporation that exists after
the redemption. See Estate of Blount v. Commissioner, 87
TCM 1303 (2004), ¶2004–116 RIA Memo TC, aff ’d in part
and rev’d in part, 

 (CA11 2005); see also A.
Chodorow, Valuing Corporations for Estate Tax Purposes,
3 Hastings Bus. L. J. 1, 25 (2006) (“Any valuation that takes
the redemption obligation into account effectively values
the corporation on a ‘post-redemption’ basis, i.e., after the
decedent’s shares have been redeemed”). But, for calculat-
ing the estate tax, the whole point is to assess how much
Michael’s shares were worth at the time that he died—be-
fore Crown spent $3 million on the redemption payment.
See 

 (defining the gross estate to “include
the value of all property to the extent of the interest therein
of the decedent at the time of his death”); 

.2031–
1(b) (the “value of every item of property includible in a de-
cedent’s gross estate . . . is its fair market value at the time
of the decedent’s death” (emphasis added)). A hypothetical
buyer would thus treat the life-insurance proceeds that
would be used to redeem Michael’s shares as a net asset.
8               CONNELLY v. UNITED STATES

                     Opinion of the Court

  Moreover, Thomas’s argument that the redemption obli-
gation was a liability cannot be reconciled with the basic
mechanics of a stock redemption. As the District Court ex-
plained, when a shareholder redeems his shares he “is es-
sentially ‘cashing out’ his shares of ownership in the com-
pany and its assets.” 

, *16. That
transaction necessarily reduces a corporation’s total value.
And, because there are fewer outstanding shares after the
redemption, the remaining shareholders are left with a
larger proportional ownership interest in the less-valuable
corporation. Thomas’s understanding, however, would turn
this ordinary process upside down. In Thomas’s view,
Crown’s redemption of Michael’s shares left Thomas with a
larger ownership stake in a company with the same value
as before the redemption. Thomas argues that Crown was
worth only $3.86 million before the redemption, and thus
that Michael’s shares were worth approximately $3 million
($3.86 million x 0. 7718). But, he also argues that Crown
was worth $3.86 million after Michael’s shares were re-
deemed. See Reply Brief 6. That cannot be right: A corpo-
ration that pays out $3 million to redeem shares should be
worth less than before the redemption. See Cox & Hazen
§21.2. Thomas’s argument thus cannot be reconciled with
an elementary understanding of a stock redemption.
  Finally, Thomas asserts that affirming the decision below
will make succession planning more difficult for closely held
corporations. He reasons that if life-insurance proceeds
earmarked for a share redemption are a net asset for estate-
tax purposes, then “Crown would have needed an insurance
policy worth far more than $3 million in order to redeem
Michael’s shares at fair market value.” Brief for Petitioner
33. True enough, but that is simply a consequence of how
the Connelly brothers chose to structure their agreement.
There were other options. For example, the brothers could
have used a cross-purchase agreement—an arrangement in
which shareholders agree to purchase each other’s shares
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                          Opinion of the Court

at death and purchase life-insurance policies on each other
to fund the agreement. See S. Pratt, Valuing a Business
821 (6th ed. 2022). A cross-purchase agreement would have
allowed Thomas to purchase Michael’s shares and keep
Crown in the family, while avoiding the risk that the insur-
ance proceeds would increase the value of Michael’s shares.
The proceeds would have gone directly to Thomas—not to
Crown. But, every arrangement has its own drawbacks. A
cross-purchase agreement would have required each
brother to pay the premiums for the insurance policy on the
other brother, creating a risk that one of them would be un-
able to do so. And, it would have had its own tax conse-
quences. By opting to have Crown purchase the life-insur-
ance policies and pay the premiums, the Connelly brothers
guaranteed that the policies would remain in force and that
the insurance proceeds would be available to fund the re-
demption. As we have explained, however, this arrange-
ment also meant that Crown would receive the proceeds
and thereby increase the value of Michael’s shares.
Thomas’ concerns about the implications of how he and Mi-
chael structured their agreement are therefore misplaced.
                              III
  We hold that Crown’s contractual obligation to redeem
Michael’s shares did not diminish the value of those
shares.2 Because redemption obligations are not neces-
sarily liabilities that reduce a corporation’s value for pur-
poses of the federal estate tax, we affirm the judgment of
the Court of Appeals.
                                              It is so ordered.

——————
   2 We do not hold that a redemption obligation can never decrease a cor-

poration’s value. A redemption obligation could, for instance, require a
corporation to liquidate operating assets to pay for the shares, thereby
decreasing its future earning capacity. We simply reject Thomas’s posi-
tion that all redemption obligations reduce a corporation’s net value. Be-
cause that is all this case requires, we decide no more.