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Section 2704(b)(4) grants the Secretary the authority to
promulgate regulations providing that restrictions other than
restrictions on liquidation shall be disregarded in determining the
value of the transfer of any interest in a corporation or
partnership among family members if the restriction has the effect
of reducing the value of the transferred interest for transfer tax
purposes but does not ultimately reduce the value of the interest
to the transferee. To date, the Secretary has promulgated
regulations concerning only restrictions on the liquidation of
partnerships.
As previously mentioned, respondent determined that section
10.01 of the KFLP and KILP partnership agreements, which states
that the partnerships shall liquidate upon the earlier of December
31, 2043, or the consent of all the partners, contains restrictions
on the liquidation of the partnerships that constitute “applicable
restrictions” within the meaning of section 2704(b). Respondent
maintains that these restrictions must be disregarded in valuing
the interests petitioners transferred to the GRAT’s trustees and to
their children. Petitioners contend that section 2704(b) is not
applicable on a number of alternative grounds.
I. Petitioners' Argument That Interests Transferred to GRAT’s
Trustees Were Assignee Interests
Petitioners contend that section 2704(b) does not apply to the
KFLP interests that they transferred to the GRAT’s trustees because
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