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D. Federal Tax Returns
Petitioners filed Federal gift and generation-skipping
transfer tax returns for 1994. Both petitioners reported that
they had given a 22.3-percent interest in the partnership to each
of the children’s trusts.
The partnership filed Forms 1065, U.S. Partnership Return of
Income, for 1995, 1996, and 1997. The management trust and each
of the children’s trusts filed Forms 1041, U.S. Income Tax Return
for Estates and Trusts, for 1995, 1996, and 1997.
OPINION
A. Contentions of the Parties
The parties agree that the starting point for valuing
petitioners’ gifts to their children’s trusts is the fair market
value of the assets petitioners transferred to the partnership
(i.e., $2,081,323), but they disagree about which discounts
apply.
Respondent contends that petitioners’ family limited
partnership should be disregarded for gift tax valuation
purposes. Thus, respondent contends that the fair market value
of each of the gifts is $450,086; i.e., 22.3 percent of the fair
market value of the real property and financial assets given by
petitioners, discounted for selling expenses and built-in capital
gains.
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