concurring in part and dissenting in part:

I agree with much of the majority opinion. 1 However, a close analysis of the record can only lead to one conclusion: the $5 million paid to Cartwright’s estate was compensation solely for his stock in the law firm. Under the shareholders’ agreement, the life insurance proceeds were to be paid to Cartwright’s estate for the value of his stock and any claims he had to the firm’s work in process. At the time of his death, Cartwright had no legal claim to the law firm’s work in process apart from his shareholder interest. Thus, the entire amount should have been allocated to stock value. Because a million dollar tax was improperly imposed, I respectfully dissent.

*1039 I

Robert Cartwright founded the law firm and built it into a successful practice. At the time of his death, he was responsible for 90% of the firm’s business. The 1973 shareholders’ agreement provided that upon the death of a shareholder, his or her estate would receive, among other compensation, 25% of the net proceeds attributable to cases (s)he brought to the firm. The agreement further granted the deceased shareholder’s estate a lien on each case from which the estate was entitled to be paid.

The undisputed evidence is that Cartwright became concerned about this provision as it applied to him. He wanted to make sure his wife was adequately compensated at his death, and he wanted to assure the firm’s continuation. As Philip Borowsky, a fellow shareholder who was the assistant managing shareholder at the time of Cartwright’s death, testified:

To address these concerns, Michael Be-zazian of Prudential Insurance Company was retained. He advised Cartwright and the firm that they should fairly value Cartwright’s interest in the business and fund the payment of the interest through life insurance. He attended a portion of a firm meeting in 1988 where he was advised that the shareholders had agreed to a $5 million valuation for Cartwright’s interest in the firm. At the meeting, the shareholders adopted an amendment to the 1973 shareholders’ agreement that supplanted the agreement as it applied to Cartwright.

The 1988 amendment provided for the purchase of $5 million in life insurance and:

The amendment only applied “as long as said life insurance policy continues to be in force.” Otherwise, by the amendment’s terms, “paragraphs 4. and 5. of the existing Shareholders Agreement will apply, unaffected by this amendment.” Paragraphs 4 and 5 of the 1973 shareholders’ agreement provided for compensation upon death based on a percentage of work in process attributable to the shareholder’s efforts. Thus, the clear intent and effect of the Cartwright amendment was to fix the value of his interest in the business, to provide a means for purchasing it, and to extinguish any independent claim his estate might have upon his death in the firm’s work in process. Indeed, Borowsky, who drafted the language along with Cartwright, testified:

In sum, the dear language of the 1988 amendment, as well as the uncontradicted testimony of the shareholder who drafted it with Cartwright, demonstrate that any right Cartwright had to work in process under the 1973 agreement was extinguished by the 1988 amendment.

The case of Steffen v. Commissioner, 69 T.C. 1049 , 1978 WL 3394 (1978), is instructive. In that case, physician-shareholders of a professional service corporation executed a stock redemption agreement. See Steffen, 69 T.C. at 1050-51 . After one of the physicians left the corporation, a dispute arose as to whether the payout made under the stock redemption agreement was for redemption of stock or for salary based on accounts receivable. See id. at 1052 . The tax court rejected the corporation’s argument that the payment included salary based on accounts receivable, noting that “as an employee Dr. Steffen had no legal interest in the accounts receivable.” Id. at 1053 . The court went on to explain:

Id. Like the corporation in Steffen, the law firm, not Cartwright individually, owned any amounts ultimately realized as a result of the work in process.

The results in Steffen are consistent with the real issue in this case: what was the “income in respect of the decedent” pursuant to 26 U.S.C. § 691 ? To be considered income in respect of the decedent, the decedent must have had a right to receive the income at the time of his or her death. See Estate of Peterson v. Commissioner, 667 F.2d 675, 679 (8th Cir.1981). As the court noted in that case:

Id. (quoting Trust Co. v. Ross, 392 F.2d 694, 695 (5th Cir.1967) (per curiam)).

Although Cartwright’s economic efforts contributed mightily to the firm’s success, Cartwright had no right, apart from his shareholder interest, to the firm’s work in process at the time of his death. The interest his estate would have had in a certain percentage of Cartwright’s own work in process under the 1973 shareholders’ agreement was extinguished by the 1988 amendment.

In interpreting the 1988 amendment, the tax court placed great weight on the phrase “together with any claim to any cases or work in process that may otherwise be made on behalf of Robert E. Cartwright,” construing it to mean that Cartwright retained some residual rights in work in process under the 1973 agreement. However, the plain language of the phrase belies this interpretation. The amendment refers not to payment for “stock and work in process,” but rather for stock and “claims to any cases or work in process that may otherwise be made ” (emphasis added). In short, the phrase was merely confirming the intent of the parties to extinguish the claims to work in process that Cartwright’s estate would have had under the 1973 agreement or would have been able to assert if the insurance policies had lapsed. Use of the phrase “that may otherwise be made” in any other context simply does not make sense.

Thus, this case is akin to Smith v. Commissioner, 82 T.C. 705, 708-09 , 1984 WL 15567 (1984), in which a sale of stock agreement specified payments for stock and commissions. The court concluded that although the word “commissions” was used, the value should be attributed to stock alone because the shareholder had no right to commissions. See Smith, 82 T.C. at 717 . Similarly, in this case, even though the 1988 amendments referred to both stock and work in process, Cartwright had no right to work in process at death independent of his shareholder interest. Thus, as in Smith, the payments made to his estate from the life insurance proceeds should be treated as compensation for stock alone.

Given that Cartwright had no independent, enforceable right to the law firm’s work in process when he died, the tax court erred in allocating a portion of the $5 million payment to work in process. By undisputed testimony of the parties and in conformance with generally accepted accounting principles, the corporation alone owned the firm’s work in process at the time of Cartwright’s death. Thus, the tax court erred in treating the bulk of the payment to the estate as “income in respect of the decedent.”

II

Because the payment to Cartwright’s estate was only for the purchase of stock, no appraisal of the stock was necessary-the parties already had agreed on its value. There is nothing wrong with this; shareholders are entitled to specify stock value for departing shareholders in advance by agreement so long as the value is determined by a bona fide, arm’s length business arrangement that is not a device to transfer property to members of the decedent’s family for less than fair market value. See 26 U.S.C. § 2703 (b). That is precisely what was done in this case.

Although a new valuation should not have been conducted, the tax court undertook that task anyway. In doing so, it committed further error by improperly crediting an expert appraisal founded on how other shareholders had fared when compensated under the 1973 agreement. Cf. Conkling v. Turner, 18 F.3d 1285, 1303-04 (5th Cir.1994) (rejecting appraisal based on superceded prior agreement). *1042 This error was compounded by the fact that payments made under the 1973 agreement to departing shareholders were not intended to equal the value of their stock. To the contrary, under the 1973 agreement the corporation’s work in process was entirely segregated from corporate assets and the departing shareholder was compensated for a percentage of the recovery of his or her own work in process. Thus, the methods and purposes of payouts to departing shareholders under the 1973 agreement were entirely different from a normal corporate stock valuation, resulting in an artificially deflated stock value. 2 Because the calculation of the amount owed under the 1973 agreement was entirely different from a determination of stock value, the IRS was comparing apples and eggs.

The majority recognizes the error in excluding work in process from stock valuation; indeed, it has held that the tax court erred in doing so. Nevertheless, it endorses the tax court’s rebanee on a methodology that specifically excludes work in process from the valuation equation. Determining stock value by utilizing the 1973 formula, which specifically excluded work in process, could only yield an inherently skewed result. Thus, the tax court also erred in its valuation methodology as a matter of law by using evidence adduced from the superseded 1973 agreement.

Ill

The majority holds that the phrase “claims to any cases or work in process that may otherwise be made” means the expectancy that Cartwright had to be paid a “bonus” in the year of his death. However, this is an argument not made by either party, and the record and the firm’s system of shareholder compensation contradicts it.

The undisputed testimony was that shareholders were paid a low fixed salary, but were given additional compensation annually in the form of a bonus. This bonus was dispensed from undistributed profits near the end of each year. The allocation of the bonus was not made by formula; rather, the bonus was distributed on a purely discretionary basis by shareholder vote. Because the bonus was distributed from cash, it could not reflect a disbursement of work in process which, by definition, had not yet been converted to cash. It also could not constitute a distribution based on “cases” because the undisputed evidence was that it was based purely on the exercise of shareholder discretion. Indeed, none of the parties has argued that the annual bonus was intended to be embraced by the shareholder buyout language. None of the historic buyouts upon which the Commissioner relied support such an interpretation. Indeed, contrary to the majority’s interpretation, the 1988 amendment specifically provides that “[a]ny amounts owed to Mr. Cartwright for unpaid salary or expenses will be additionally paid or reimbursed to his Estate.” Absent any evidence of intent and without supporting contract language, the majority errs in allocating a portion of the life insurance payment to an anticipated bonus.

Even if, arguendo, one assumes that the anticipated bonus was to be included in a shareholder buyout, it would still not result in the allocation of the life insurance *1043 payment made in this case. The tax court allocated $4,080,256 to “income in respect of the decedent.” A review of the historical practices of the law firm, however, belies such a large allocation to a bonus. In the five years preceding his death, Cartwright’s bonus ranged from $243,500 to $400,000. For the tax year in which he died, the sum of all compensation — salary and bonus — paid to all shareholders was $1,084,881. Thus, it was implausible to assume that Cartwright would have received a $4 million annual bonus. This amount would have defied the historical bonus payments made to Cartwright, and the firm could not have funded it.

In addition, although the firm and the estate have disagreed about nearly everything else, neither of them has suggested that Cartwright’s estate is owed more money on account of an expectation of a bonus, or that the annual bonus comprised part of the life insurance payment. To the contrary, an analysis of both the corporate and estate tax returns would indicate that a bonus already has been paid for the year that Cartwright died. 3 For all these reasons, it would be improper to allocate any part of the $5 million payment to an expectancy of an annual bonus, much less four-fifths of the insurance proceeds.

IV

In sum, the legal effect of the 1988 amendment was to define the $5 million payment as compensation for stock alone. A careful examination of the record supports this conclusion. The tax court erred as a matter of law in concluding otherwise, resulting in a million dollar error. Thus, I would reverse the tax court without remanding for further proceedings. Accordingly, I respectfully dissent.

. I specifically concur in the holding that the tax court erred by excluding advanced client costs and work in process from corporate assets.

. A simple example illustrates the point. Assume that the present value of the entire firm’s work in process is $5 million, that Cartwright was responsible for bringing in 90% of the work in process and that he owned 75% of the corporate stock. Under the 1973 agreement, his estate would be entitled to 25% of 90% of the present value of the firm's work in process, or $1,125,000 attributable to work in process. Under the 1988 amendment, his estate would not receive any separate compensation for the work in process attributable to his efforts, but would receive 75% of the net value of the corporate assets (including all the firm's work in process), or $3,750,000 attributable to the value of work in process. (Of course, in each case, his estate additionally would receive 75% of the net value of the other corporate assets.) The point is, of course, that the differing methodologies yield vastly differing answers and it is improper to compare them.

. As I noted earlier, the undisputed testimony was that the corporate practice was to set relatively low monthly salaries. In fact, one shareholder testified at trial that at a premium price of $10,000 a month "the insurance policy was the highest-paid shareholder in the firm.” For many years, Cartwright was paid a salary of approximately $9,000 per month. In tax years 1985 and 1986, he was paid $15,000 per month. In the tax year prior to his death, he was paid $18,000 per month in salary. For the tax year in which he died, Cartwright and his estate were paid $276,000 in addition to the distribution of life insurance proceeds for the tax year in question. Although the record does not reflect what portion of this is bonus and what portion is salary, the sum is roughly proportional to the amount of total compensation paid to Cartwright (salary and bonus) during the pri- or tax year. It is triple what his salary would have been for the proportional tax year based on previous years' payments. He was never paid as much as $276,000 annually in salary alone, much less in a five month span. Thus, the returns and corporate records support the conclusion that the total compensation paid Cartwright and his estate included both salary and the annual bonus. The majority concludes otherwise. Although I respectfully disagree, in the end the differences in our interpretation may not be significant: it is a matter easily resolved on remand. It was not the subject of debate at trial because neither party contended, as the majority does, that a portion of the life insurance proceeds should be allocated to payment of the annual bonus.