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that Birnie's failure to exercise her statutory rights operated
as a waiver of her rights which allowed the partnership property
to remain in Elizabeth's name subject to distribution by her
executors in accordance with the terms of her will.
Agreement Between Birnie and Elizabeth
Respondent contends that no business partnership was formed
and that the assets that the sisters acquired were merely
personal assets which Birnie and Elizabeth jointly owned.
Petitioner argues that because the sisters created a business
partnership, Birnie's actions (or inaction) subsequent to
Elizabeth's death resulted in the partnership's assets being left
in Elizabeth's name and thus being disposed of through
Elizabeth's estate with the consequence that Birnie did not have
a sufficient interest in the Hondo stock to make a gift of that
stock.
Section 301.7701-1(c), Proced. & Admin. Regs., provides, in
pertinent part, as follows:
Although it is the Internal Revenue Code rather than
local law which establishes the tests or standards
which will be applied in determining the classification
in which an organization belongs, local law governs in
determining whether the legal relationships which have
been established in the formation of an organization
are such that the standards are met. Thus, it is local
law which must be applied in determining such matters
as the legal relationships of the members of the
organization among themselves and with the public at
large, and the interests of the members of the
organization in its assets.
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