Baine P. and Mildred C. Kerr - Page 6




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          Kerr Family Limited Partnership                                             
               On December 31, 1993, petitioners and the Kerr children                
          executed an agreement forming the Kerr Family Limited Partnership           
          (KFLP) under the Texas Revised Limited Partnership Act (TRLPA),             
          Tex. Rev. Civ. Stat. Ann. art. 6132a-1 (West Supp. 1993).                   
          Petitioners made all capital contributions to KFLP in the form of           
          three life insurance policies on their lives with a face amount             
          totaling approximately $7 million.  The Kerr children did not make          
          any capital contributions to KFLP.                                          
               At the time KFLP was formed, petitioners were the sole general         
          partners.  However, petitioners immediately assigned a portion of           
          their general partnership interest to each of the Kerr children.            
          In particular, each of the Kerr children received a .2325-percent           
          KFLP general partnership interest.  There is no evidence in the             
          record that petitioners executed a written consent admitting the            
          Kerr children as general partners of KFLP.                                  
          Following the transfers described above, petitioners retained               
          the following partnership interests in KFLP: (1)  A combined 100-           
          percent class A limited partnership interest;6 (2) a combined 2-            




               6  Pursuant to sec. 5.01 of the KFLP partnership agreement,            
          class A limited partners were entitled to an annual guaranteed              
          payment.                                                                    








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