IRC Section 2703 addresses restrictions on the sale or use of property, such as buy sell agreements or options, that might artificially depress the value of transferred interests for estate and gift tax purposes. The section generally provides that certain options, agreements, or restrictions are disregarded in valuing property unless they meet specific requirements showing that they are bona fide business arrangements, not devices to transfer property at less than fair value, and comparable to similar arm's length terms. In the context of life insurance and business planning, Section 2703 is especially important for buy sell agreements funded with insurance, where agreement terms directly influence the valuation of closely held stock or partnership interests at death or transfer.

In real world planning, advisors see IRC Section 2703 when designing or reviewing shareholder agreements, operating agreements, and buy sell contracts that are intended to set the price at which interests will be bought and sold, often funded with life insurance. If an agreement mandates a low fixed price that is never updated, or contains restrictive terms that would not apply in an arm's length transaction, the IRS may disregard it under 2703 and value the interests at a higher fair market value instead. Advisors work with attorneys to ensure that buy sell agreements are properly structured, periodically updated, and supported by independent business valuations. They also coordinate life insurance coverage so death benefits align with realistic purchase prices, providing liquidity without leaving buyers short or beneficiaries undercompensated. Understanding Section 2703 helps producers explain why "cheap" valuation clauses can backfire and why well drafted, commercially reasonable agreements are essential to effective insurance funded succession plans.