- 26 - 704(e), each member of the Winkler family shall be recognized as a partner if he or she owns a capital interest in the enterprise. Sec. 704(e)(1). Section 1.704-1(e)(2), Income Tax Regs., sets forth basic tests to determine "ownership". These tests are designed to determine "Whether an alleged partner who is a donee of a capital interest in a partnership is the real owner of such capital interest, and whether the donee has dominion and control over such interest". Id. For this purpose, a capital "interest purchased by one member of a family from another shall be considered to be created by gift from the seller, and the fair market value of the purchased interest shall be considered to be donated capital." Sec. 704(e)(3). The basic tests fall into five categories: Retained controls by the transferor of the partnership interest, indirect controls by the transferor, participation in management, income distributions, and conduct of partnership business. Cirelli v. Commissioner, 82 T.C. 335, 345 (1984); sec. 1.704-1(e)(2), Income Tax Regs. Whether a person "owns" a capital interest in a partnership is a mixed factual and legal issue to be determined from the totality of the circumstances. Pflugradt v. United States, 310 F.2d 412, 416 (7th Cir. 1962); Reynolds, T.C. Memo. 1987-261.Page: Previous 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 Next
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