TAM
8821005
Internal
Revenue Service (I.R.S.) Technical Advice Memorandum
Issue:
May 27, 1988
February
22, 1988
Section
2036 -- Transfers With Retained Life Estate (Included v. Not Included in Gross
Estate)
2036.00-00
Transfers With Retained Life Estate (Included v. Not Included in Gross Estate)
TR-32-00223-87
Taxpayer's
Name: * * *
Taxpayer's
Address: * * *
Taxpayer's
I.D. No.: * * *
Date
of Death: * * *
Conference
Held: * * *
LEGEND:
Decedent
= * * *
A
= * * *
B
= * * *
Partnership
= * * *
ISSUE
1
Is
the real property that was transferred by the decedent to Partnership
includible in his gross estate under section 2036(a) of the Internal Revenue
Code?
ISSUE
2
For
purposes of section 2501 of the Code, was the decedent's transfer of the real
property a taxable gift?
FACTS
The
decedent owned approximately 150 acres of real property. In August 1981, he
executed an agreement with his two adult children, A and B, in which Partnership
was created. The decedent then transferred the real property to Partnership as
his capital contribution. The stated value of the property at the time of the
transfer was $1,725,000.
Under
the terms of the agreement, the decedent was designated as the General Partner.
A and B were designated as the Limited Partners. Based upon actual
contribution, the decedent had an initial capital account of $1,725,000. A and
B each had an initial capital account of $5,000.
THE
PARTNERSHIP AGREEMENT
The
voting participation of Partnership was exercisable by the decedent to the
extent of 49%; by A to the extent of 25.5%; and by B to the extent of 25.5%.
Sections
H and L of the partnership agreement provide for allocations of income. Section
H(2) states:
The
percentage participations of the Partners in capital, profit or loss, and net
cash receipts shall be as follows for accounting, income tax, and cash flow
purposes: . . .
c.
The greater of either (i) THE NET CASH RECEIPTS ATTRIBUTABLE TO THE RENTAL OF
CAPITAL ASSETS or arising from the sale or other disposition of such assets or
(ii) a sum of net cash receipts equal to one percent (1%) (the 'Fixed
Percentage') of the initial equity capital contributed by the General Partner
and not theretofore repaid to the General Partner . . . This special allocation
is a priority right payable to the extent of the net cash receipts . . . but if
insufficient net cash receipts are available for the taxable year to pay this
allocation, this allocation shall cumulate . . . THE SUM PAYABLE UNDER THIS
ALLOCATION SHALL NOT EXCEED THE NET CASH RECEIPTS ATTRIBUTABLE TO THE RENTAL OF
CAPITAL ASSETS or arising from the sale or other disposition of such assets . .
.
d.
SUBJECT TO THE PRIORITIES SET FORTH IN SECTION L(2), all other net cash
receipts not specially ALLOCATED TO THE GENERAL PARTNER, AS PROVIDED IN
PARAGRAPH (c) IMMEDIATELY ABOVE, shall be allocated as follows:
Percentage Participation
Partner In
Other Net Cash Receipts
_______
__________________________
[Decedent] 5.0%
[A] 47.5%
[B]
47.5% [Emphasis added.]
Section
L(2) of the agreement states:
*
* * [The] net cash receipts shall be distributed to the Partners according to
their percentage participation, as allocated in Section H(2)(d), SUBJECT,
HOWEVER, TO THE FOLLOWING PRIORITIES:
a.
All net cash receipts available to the Partnership for the taxable year shall
be paid as a first priority, to the General Partner according to the percentage
participation set forth in Section H(2)(c), to satisfy the special allocation
of net cash receipts payable to the General Partner pursuant to that Section,
WHICH IS THE ALLOCATION TO THE GENERAL PARTNER OF THE GREATER OF THE NET CASH
RECEIPTS ATTRIBUTABLE TO THE RENTAL . . . OF CAPITAL ASSETS or the fixed
percentage.
b.
After satisfying the first priority, all net cash receipts available to the
Partnership for the taxable year shall be paid to the General Partner, as a
second priority, to satisfy deficiencies in the first priority items that are
carried over as cumulative arrearages.
c.
After satisfying the first and second priorities, ALL THE NET CASH RECEIPTS
available to the Partnership for the taxable year SHALL BE PAID to the General
Partner, as a third priority, ACCORDING TO THE PERCENTAGE PARTICIPATION SET
FORTH [FOR CAPITAL LOSSES] until the General Partner has been repaid the amount
of the initial equity capital and additional equity capital he had contributed.
d.
After satisfying the first, second and third priorities, all net cash receipts
. . . shall be paid . . . according to the percentage participation set forth
in Section H(2)(d). [Emphasis added.]
Under
the agreement, capital losses were to be allocated to the decedent to the
extent of 99%; to A to the extent of 0.5%; and to B to the extent of 0.5%. All
other losses were to be allocated to the decedent to the extent of 90%; to A to
the extent of 5%; and to B to the extent of 5%.
All
losses allocable to a partner were chargeable to his capital account as a
reduction. A partner with a negative capital account was required to restore
enough capital to offset the negative balance. However, a partner was entitled
to participate in net cash receipts, profit or loss, or capital items only if
he had a positive capital account. A partner having a capital account of zero
or a negative capital account could not participate in income or losses.
Likewise, a partner who had been repaid his capital contribution could no
longer participate in the profits and losses. Limited Partners were required to
maintain capital accounts of at least $50.
Partnership
assets could not be sold or exchanged (other than in the ordinary course of
business) or financed without the consent of 51% of the voting participation.
Similarly, the consent and affirmative vote of 51% of the voting participation
was required for a dissolution of Partnership.
The
General Partner could not assign or otherwise transfer his interest, nor could
he voluntarily withdraw or otherwise terminate his participation. However, the
Limited Partners could transfer their interests or withdraw from the
Partnership with the consent of the General Partner.
A
Partnership interest was to terminate upon the death or incapacity of the
respective partner. Upon a partner's death, the interest was to vest in his
heir or legatee who could be admitted as a Limited Partner. On the death of the
General Partner, the Partnership could continue upon the designation of a
substituted General Partner.
THE
USE OF THE REAL PROPERTY
Before
the formation of Partnership, the real property had been leased to a ranching
venture operated by the decedent, A, and an unrelated third person. After
Partnership was formed, the land continued to be leased for the same purposes.
THE
APPRECIATION OF THE REAL PROPERTY
The
decedent died in 1985. On the federal estate tax return filed for the
decedent's estate, the executor indicated a value of $1,998,089 for the
decedent's partnership interest. The indicated value included income that had
not yet been paid to the decedent.
Although
the real property was stated to be worth $1,725,000 on the date of the transfer
to Partnership, the property appreciated significantly so that, on the date of
the decedent's death, it was worth more than $5,900,000. Thus, the property
appreciated in value by at least $4,175,000.
Except
for a minimal portion, the executor did not attribute any of the $4,175,000
post-transfer appreciation to the decedent's interest. Rather, the
post-transfer appreciation of the real property was to be attributed to the
value of the limited partners' interests. Thus, the value of the decedent's
interest in Partnership was returned at approximately the same value
($1,750,000) that was stated for the real property in 1981. Based on this
return value, A's and B's respective cash investments of $5,000 would have each
increased in value to approximately $2,000,000, in 1985, to include almost all
of the post-transfer appreciation.
LAW
AND ANALYSIS
Section
2036(a) of the Code provides that the value of the gross estate shall include
the value of all property to the extent of any interest therein of which the
decedent has at any time made a transfer (except in case of a bona fide sale
for an adequate and full consideration in money or money's worth), by trust or
otherwise, under which the decedent retained for any period which does not in
fact end before the decedent's death --
(1)
the possession or enjoyment of, or the right to the income from, the property.
Section
2043(a) of the Code provides that if any one of the transfers described in
sections 2035 to 2038 is made for a consideration in money or money's worth,
but is not a bona fide sale for an adequate and full consideration in money or
money's worth, there shall be included in the gross estate only the excess of
the fair market value at the time of death of the property otherwise to be
included on account of such transaction, over the value of the consideration
received therefor by the decedent.
Section
2501 of the Code imposes a tax for each calendar year on the transfer of
property by gift.
Section
2511 of the Code provides that the gift tax shall apply whether the transfer is
in trust or otherwise, whether the gift is direct or indirect, and whether the
property is real or personal, tangible or intangible.
Section
2512(a) of the Code provides that if the gift is made in property, the value
thereof at the date of the gift shall be considered the amount of the gift.
Section
2512(b) of the Code provides that where property is transferred for less than
an adequate and full consideration in money or money's worth, then the amount
by which the value of the property exceeded the value of the consideration
shall be deemed a gift, and shall be included in computing the amount of gifts
made during the calendar year.
Section
20.2036-1(a) of the Estate Tax Regulations provides that a decedent's gross
estate includes under section 2036 the value of any interest in property
transferred by the decedent, except to the extent that the transfer was for an
adequate and full consideration in money or money's worth, if the decedent
retained for any period which does not in fact end before the decedent's death,
the right to the income of the transferred property.
Section
20.2043-1(a) of the regulations provides that the transfers described in sections
2035 through 2038 are not subject to the federal estate tax if made in a
transaction which constituted a bona fide sale for an adequate and full
consideration in money or money's worth. To constitute a bona fide sale for an
adequate and full consideration in money or money's worth, the transfer must
have been made in good faith, and the price must have been an adequate and full
equivalent reducible to a money value. If the price was less than such a
consideration, only the excess of the fair market value of the property (as of
the applicable valuation date) over the price received by the decedent is
included in ascertaining the value of the gross estate.
Section
25.2511-2(b) of the Gift Tax Regulations provides that as to any property of
which the donor has so parted with dominion and control as to leave in him no
power to change its disposition, the gift is complete.
Section
25.2512-1 of the regulations provides that if a gift is made in property, its
value at the date of the gift shall be considered the amount of the gift. The
value of the property is the price at which such property would change hands
between a willing buyer and a willing seller.
Section
25.2512-3(a) of the regulations provides that care should be taken to arrive at
an accurate valuation of any interest in a business which the donor transfers
without an adequate and full consideration in money or money's worth. The fair
market value of any interest in a partnership is the net amount which a willing
purchaser would pay for the interest to a willing seller, neither being under
any compulsion to buy or to sell and both having reasonable knowledge of the
relevant facts.
Section
25.2512-8 of the regulations provides that transfers reached by the gift tax
are not confined to those only which, being without a valuable consideration,
accord with the common law concept of gifts, but embrace as well sales,
exchanges, and other dispositions of property for a consideration to the extent
that the value of the property transferred by the donor exceeds the value in
money or money's worth of the consideration given therefor. However, a sale,
exchange, or other transfer of property made in the ordinary course of business
(a transaction which is bona fide, at arm's length, and free from any donative
intent) will be considered as made for an adequate and full consideration in
money or money's worth. A consideration not reducible to a value in money or
money's worth is to be wholly disregarded and the entire value of the property
transferred constitutes the amount of the gift.
ISSUE
1
The
question presented focuses on the decedent's right to receive 'the net cash
receipts attributable to the rental of capital assets,' as provided in section
H(2)(c) of the partnership agreement. If this right is tantamount to a retained
right to the income from the transferred real property and the transfer was
donative, the property is includible the decedent's gross estate under the
inclusion rules of section 2036(a)(1).
1)
DID THE DECEDENT RETAIN THE RIGHT TO THE INCOME FROM THE REAL PROPERTY?
Under
section 2036(a)(1), if a decedent retained the right to the income from
gratuitously transferred property for any period which did not, in fact, end
before the decedent's death, the transferred property is includible in the gross
estate. See Estate of Nicol v. Commissioner, 56 T.C. 179 (1971), (in which the
decedent conveyed the legal title to farm property but retained the right to
its rent); Estate of Whitt v. Commissioner, 751 F.2d 1548 (11th Cir. 1985), (in
which the decedent retained the right to the income from transferred farmland);
Estate of Cooper v. Commissioner, 74 T.C. 137 (1980), (in which the decedent
transferred bonds but retained coupons representing the right to receive
interest). See also, Estate of Kinney v. Commissioner, 39 T.C. 728 (1963);
Estate of Lee v. Commissioner, 33 T.C. 1064 (1960), (both applying Section
2036(a)(1) with respect to trust interests).
In
McNichol's Estate v. Commissioner, 265 F.2d 667 (3d Cir. 1959), the decedent
conveyed income-producing real property to his children. However, there was a
contemporaneous understanding that he would retain the right to the income. In
holding that the property was includible in the decedent's gross estate under
the predecessor statute to section 2036(a)(1), the court stated:
[O]ne
of the most valuable incidents of income-producing real estate is he rent which
it yields. HE WHO RECEIVES THE RENT IN FACT ENJOYS THE PROPERTY. [Emphasis
supplied.]
Consequently,
in the case of income-producing property, the reservation of the right to the
rent is tantamount to a reservation of the right to the income from the
property, within the meaning of section 2036(a). See Nicol, above cited, at 182
(in which the court characterized reserved rental income as 'the fruits of ownership').
Furthermore, it is not necessary for the decedent to have actually received the
rental income. Rather, inclusion under section 2036(a)(1) is based upon the
retained RIGHT to the income rather than its actual receipt. McNichol's Estate,
above cited, at 671; H.R. Rep. No. 708, 72d Cong., 1st Sess. 46, 1939-1 C.B.
(Pt. 2) 491; S. Rep. No. 665, 72d Cong., 1st Sess. 49, 1939-1 C.B. (Pt. 2) 532.
Under
applicable local law, no partner is entitled to any individual partnership
asset or the income produced by it unless the partnership agreement so
provides. See Phillips v. C. Palomo & Sons, 270 F.2d 791 (5th Cir. 1959);
Dunn v. Summerville, 669 S.W.2d 319 (Sup. Ct. Tex. 1984); 57 Tex. Jur. section
37 (3d ed. 1987). However, the partnership agreement may be drafted by the
partners to specifically allocate certain partnership property or the income
from it to a particular partner. Cf. Dobson v. Dobson, 594 S.W.2d 177 (Civ.
App. lex. 1980).
In
this case, sections H(2)(c) and L(2)(a) of the partnership agreement
specifically reserved the rent from the capital assets for the decedent. In
addition, the lease arrangement for the real property (the only capital asset
of Partnership other than cash of less than $10,000) continued from the date of
the decedent's transfer through the date of his death. Consequently, based on
the explicit language of the agreement and the facts and circumstances of this
case, we conclude that the decedent retained the right to receive the rent from
the transferred real property for a period which did not in fact end before his
death.
Because
a reservation of the right to receive rent from income-producing property is
regarded as a reservation of its income, the decedent retained the right to the
income from the transferred property, within the meaning of section 2036(a)(1).
Compare Estate of Boykin v. Commissioner, T.C. Memo 1987-134, involving a
recapitalization of stock of a closely held family corporation and a transfer
of the common shares. In Boykin, as part of the recapitalization, 1) the yield
of the common shares was decreased by the issuance of high-yield preferred
shares to the common shareholder and 2) the common shares were then transferred
to trusts for the benefit of the transferors' children. The decedent was one of
the transferors. In Boykin, the court concluded that the decedent did not
retain the right to the income from the transferred common shares by retaining
his high-yield preferred shares. The court's conclusion was based on the
premise that there was no relationship (or nexus) between the retained income
rights of the preferred shares and the income otherwise payable on the
transferred common shares. The facts in the present case are distinguishable
from those of Boykin in that, in this case, the decedent's income rights were
specifically based on the rent from the transferred property. In this case,
therefore, there is a direct relationship (or nexus) between the decedent's
retained income rights and he in from the transferred property. Consequently,
the rationale of Boykin is not applicable.
Similarly,
in Estate of Harrison v. Commissioner, T.C. Memo 1987-8, the decedent
transferred property to a partnership and received, in exchange, general
partnership and limited partnership interests. Because the decedent, (as a
general partner) acquired the right to liquidate the partnership, the
government contended that he retained the right to the possession and income of
the transferred property, for purposes of section 2036(a). The court, however,
held that 1) there was no relationship between the right to receive proceeds of
liquidation and the property transferred to the partnership, and 2) therefore,
the decedent did not retain the right to either the possession or income of the
property by reason of the liquidation right. As with Boykin, the rationale of
Harrison is not applicable here because, in this case, there was a direct
relationship between the decedent's retained right to receive the rent and the
transferred rental property. We further note that, in Harrison, an essential
factor in the court's determination (that section 2036(a) was not applicable)
was a finding, based upon stipulated facts, that the transfer was made for a
full and adequate consideration.
2.
WAS THE DECEDENT'S TRANSFER DONATIVE?
Sections
2036(a) and 2043(a) provide a special exclusion from the general rule for
inclusion under section 2036(a). That is, to the extent that the property was
transferred by the decedent pursuant to a bona fide sale for an adequate and
full consideration in money or money's worth, it is not includible in the gross
estate. Only the excess of the fair market value of the property on the date of
death (over the value of the consideration received by the decedent) is
includible in the gross estate. Nevertheless, transactions within a family
group are subject to special scrutiny and the presumption is that a transfer
between family members is not a bona fide sale. Estate of Reynolds v.
Commissioner, 55 T.C. 172 (1970). See also Harwood v. Commissioner, 82 T.C. 239
(1984).
To
constitute a full consideration in money or money's worth within the meaning of
section 2036(a) and section 2043(a), the consideration must have been an
adequate and full equivalent to the value of the transferred property. Section
20.2043-1(a). Likewise, any particular consideration must be reducible to a
money value. Section 20.2043-1(a) of the regulations. That is, the
consideration must be of such nature that, if it were receivable or held by the
decedent at the time of death, it would be includible in the the gross estate
(as property in which the decedent had an interest at death). See Lowndes,
Kramer & McCord Federal Estate and Gift Taxes sections 14.3, 14.4 (3d ed.
1974).
The
value of any consideration received by a decedent, in the context of a section
2036 transfer, is determined as of the date of the transfer. United States v.
Righter, 400 F.2d 344 (8th Cir. 1968). Furthermore, in computing the consideration
received by a decedent, the value of the decedent's retained life interest is
not regarded as consideration paid to the decedent. Rather, the full value of
the transferred property (rather than merely a remainder interest) is treated
as passing from the decedent at the time of the transfer. United States v.
Allen, 293 F.2d 916 (10th Cir. 1961).
In
this case, the decedent received a partnership interest as consideration for
the real property transferred to Partnership. The pivotal question, in determining
whether the transfer was donative, for purposes of sections 2036(a) and
2043(a), is the extent to which the partnership interest is regarded as
consideration in money or money's worth received by the decedent.
The
fair market value of the partnership interest acquired by the decedent on the
date of the transfer is a factual question for determination by the District
Director. See, for example, Rev. Rul. 80-186, 1980-2 C.B. 280. However, a
determination of the rights attributable to the interest (and whether the
rights are reducible to a money value as consideration in money or money's
worth) is a question of law. See Estate of Watts v. Commissioner, 823 F.2d 483
(11th Cir. 1987); section 25.2512-8.
Under
applicable local law, the rights attributable to a partner's interest are
determined by the partnership agreement. Because the provisions of the
agreement are controlling, the Uniform Partnership Act and Uniform Limited
Partnership Act are applicable only when the partnership agreement is silent. Park
Cities Corporation v. Byrd, 534 S.W.2d 668 (Sup. Ct. Tex. 1976); Dobson v.
Dobson, 594 S.W.2d 177 (Civ. App. Tex. 1980); 57 Tex. Jur., above cited, at
section 32.
In
this case, certain individual rights were specifically reserved to the decedent
by the partnership agreement. Therefore, in determining the value of the
decedent's interest in this particular case, it is appropriate to consider each
of the rights to determine whether they are reducible to a money value or are
otherwise treated as a consideration in money or money's worth, for purposes of
section 2036(a) and 2043(a). For example, the decedent was entitled to receive
the net rent from the transferred property. Nevertheless, in determining the
consideration received by the decedent, the retained right to the rent from the
transferred property is not regarded as consideration in money or money's
worth. See United States v. Allen, above cited, at 918. Likewise, the decedent
was entitled to certain allocations of losses. Because potential partnership
income tax losses 1) are not reducible to an adequate and full equivalent of a
money value, and 2) are not of such nature as to be includible in a decedent's
gross estate, the losses, also, are not treated as consideration in money or
money's worth. Consequently, in determining the value of the partnership
interest received by the decedent, neither the reserved rent nor the losses
allocable to the decedent's capital account are regarded as consideration
received for the transferred real property.
In
addition, the decedent acquired an interest that would ultimately be barred
from participation in profits and losses when his capital account was reduced
to zero. Although certain excess income was to be distributed to him in
reduction of his capital account, all losses allocable to him were also to be
debited against the capital account. See, for example, Park Cities Corporation,
above cited, at 674. Consequently, the decedent's interest was subject to a
buy-out based upon the allocation of losses and certain excess partnership
income. Since 1) the buy-out could have conceivably been effectuated entirely
by losses (or by a combination of losses and excess income), and 2) losses are
not regarded as consideration in money or money's worth, the consideration receivable
in the buy-out does not have any value for estate and gift tax purposes.
Section 20.2043-1 and section 25.2512-8.
We
note that the decedent could not require a return of his capital contribution
upon request. Nor could he use his position as the general partner to sell or
finance the property and distribute the funds to himself. See Conrad v. Judson,
465 S.W.2d 819 (Civ. App. Tex. 1971); United States v. Byrum, 408 U.S. 125,
1972-2 C.B. 518. The agreement likewise restricted the decedent's powers by prohibiting
any sale of assets (other than in the ordinary course of business) or financing
without the consent of 51% of the voting participation. Furthermore, the
decedent's right to a return of his capital contribution could have been
terminated by the complete reduction of his capital account through the
allocation of losses (or the allocation of a combination of losses and excess
income). Therefore, it was uncertain, at the time of the transfer, the extent
to which the decedent would have ultimately received consideration in money or
money's worth in repayment of his capital contribution. See, for example, Park
Cities Corporation, above cited, at 674.
In
this case, 49% of the voting participation was attributable to the decedent's
partnership interest. He, therefore, acquired a minority interest. See, for
example, Harwood, above cited, at 268. Consequently, a minority discount may be
applicable in the valuation. Estate of Ward v. Commissioner, 87 T.C. 78 (1986).
In addition, a discount for lack of marketability may also be applicable.
Estate of Gallo v. Commissioner, T.C. Memo. 1985-363; Koffler v. Commissioner,
T.C. Memo, 1978-159; Estate of Andrews v. Commissioner, 79 T.C. 938 (1982).
Because
the valuation of the consideration received by the decedent is a matter for the
District Director, the determination of whether the transfer was donative is,
likewise, a question for ultimate determination by the District Director.
Nevertheless, inasmuch as the decedent retained the right to the income from
the transferred real property, the property is includible in the decedent's
gross estate under section 2036(a) to the extent that the value of the
property, on the decedent's date of death, exceeded the value of the
consideration received therefor (determined within the guidelines discussed
above).
ISSUE
1 CONCLUSION
The
decedent retained the right to the income from the transferred real property
for a period which did not in fact end before his death. The property is
includible in the decedent's gross estate under section 2036(a) to the extent
that the transfer was not a bona fide sale for an adequate and full
consideration in money or money's worth, as determined by the District
Director.
ISSUE
2
Under
section 25.2512-8 of the regulations, a sale or other transfer of property made
in the ordinary course of business (a transaction which is bona fide, at arm's
length, and free from any donative intent) will be considered as made for an
adequate and full consideration in money or money's worth.
The
issue presented considers whether 1) the decedent's transfer was made in the
ordinary course of business, within the meaning of section 25.2512-8, and 2) if
it was not made in the ordinary course of business, whether the transfer was
gratuitous in whole or in part.
Similar
to the facts in this case, Harwood, above cited, involved an intra-family
transfer of an interest in a family-owned partnership. In Harwood, the donor
transferred her fractional partnership interest to her two adult children in
exchange for a promissory note. In holding the transaction to be a gift rather
than a sale in the ordinary course of business, the court stated at 258:
We
do not believe that a transfer by a [parent] to her [children] of her interest
in the family partnership, structured totally by the family accountant, with no
arm's length bargaining, can be characterized as a transaction in the ordinary
course of business.
In
this case, 1) the intra-family transaction involved a parent and two adult
children in the context of a close family relationship; 2) there were no arm's
length negotiations; 3) the decedent exchange a fee interest in real property
for a low-yield minority interest that was subject to termination during his
lifetime; 4) neither A no B participated in Partnership; 5) all active
participation in the decision making and management of the partnership was
relegated to the decedent as the general partner; and 6) the partnership
agreement did not provide for continuity of family ownership because the
decedent's interest could have been bequeathed to any transferee upon the
decedent's death. We, therefore, conclude that, like the transfer in Harwood,
the transfer in this case lacked the elements of a transfer in the ordinary
course of business within the meaning of section 25.2512-8.
As
heretofore indicated, the determination of whether the partnership interest
represented a full and adequate consideration in money or money's worth for the
transferred real property is a factual determination to be made by the District
Director. Consequently, the decedent made a gift, for purposes of section 2501
of the Code to the extent that the value of the transferred real property
exceeded the value of the partnership interest received by the decedent.
Section 25.2512-8.
CONCLUSION
ISSUE 2
To
the extent that the value of the transferred real property exceeded the value
of the partnership interest received by the decedent, the transfer was a
taxable gift for purposes of section 2501 of the Code.
A
copy of this Technical Advice Memorandum should be given to the taxpayer.
Section 6110(j) of the Code provides it may not be used or cited as precedent.
This
document may not be used or cited as precedent. Section 6110(j)(3) of the
Internal Revenue Code.