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that Fred Jr. mastered the HUD bureaucracy and regulations
encountered in the undertaking; and that, as managing partner,
Fred Jr. did the lion’s share of the work in developing and
managing the housing projects, whereas decedent served merely as
a “sounding board”. Thus, petitioner’s argument goes, decedent’s
agreement to give the options to Fred Jr.–-in which decedent
effectively gave up any future appreciation in the value of his
interests exceeding the $10,000 option price and settled for a
share of each partnership’s current operating income-–was arm’s
length and bona fide, given the vastly unequal contributions of
father and son.
When both parties to the agreement are members of the same
family and circumstances indicate that testamentary
considerations influenced the creation of the option agreement,
we do not assume that the price as stated in the agreement was a
fair one. See Bommer Revocable Trust v. Commissioner, supra;
Estate of Lauder v. Commissioner, supra. We first note that the
fixed price of the option, without any adjustment mechanism to
reflect changing conditions, invites close scrutiny. If decedent
and Fred Jr. really engaged in an arm’s-length transaction in
which it was decided that Fred Jr.’s greater contribution
required decedent to give an option, we believe the price of the
option would have included an adjustment mechanism to account for
future appreciation. See Bommer Revocable Trust v. Commissioner,
supra. The fact that the price was set at $10,000, combined with
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