Baine P. and Mildred C. Kerr - Page 26




                                       - 26 -                                         
          also Schultz v.  United States, 493 F.2d 1225 (4th Cir. 1974);              
          Johnson v.  Commissioner, supra.                                            
               On the basis of our review of the record, we are persuaded by          
          a number of factors that petitioners, in substance, as in form,             
          transferred limited partnership interests to the GRAT’s trustees.           
          As discussed below, the factors that we have relied upon in support         
          of our holding on this point include petitioners' failure to                
          respect the literal terms of the partnership agreement, the form of         
          the transfers, and the economic realities and tax motivation                
          underlying the transfers.                                                   
               A.  Failure To Comply With The Partnership Agreement                   
               Petitioners failed to adhere strictly to the literal terms of          
          the KFLP partnership agreement governing transfers of general               
          partnership interests. Specifically, when KFLP was formed,                  
          petitioners transferred three life insurance policies on their              
          lives to the partnership.  The Kerr children did not contribute any         
          assets to the partnership. Consistent with the terms of the                 
          partnership agreement, petitioners admit that they initially were           
          the sole general partners of KFLP.  Pursuant to section 4.01 of the         
          partnership agreement, petitioners subsequently assigned a portion          
          of their general partnership interests in KFLP to each of their             
          children.                                                                   
               Significantly, under the plain language of section 8.20 of the         
          KFLP partnership agreement, petitioners' inter vivos transfers of           






Page:  Previous  16  17  18  19  20  21  22  23  24  25  26  27  28  29  30  31  32  33  34  35  Next

Last modified: May 25, 2011