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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.
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