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equal, or approximately equal, to the value of the corresponding
underlying assets,1 that would not be legal justification for
applying the economic substance doctrine and disregarding the
partnership. Whether “the form of the transaction here (the
creation of the partnership) would be taken into account by a
willing buyer” is not a relevant consideration in determining
whether the entity must be respected for transfer tax purposes.
Our assessment of the property rights transferred is a State law
determination not affected by the “willing buyer, willing seller”
valuation analysis. Sec. 20.2031-1(b), Estate Tax Regs. (stating
that the fair market value of property is “the price at which the
property would change hands between a willing buyer and a willing
seller”). In essence, that analysis assists the Court in
determining the value of partnership interest after the Court
establishes whether the entity is recognized under State law.
The determination of whether or not the partnership should
be respected is independent of the value of the partnership
interest. The logical inference from the majority’s statements,
however, is that a partnership could be disregarded for lack of
economic substance if a hypothetical willing buyer would not
respect the partnership form. This language may mislead
1 The value of the partnership interest and its
corresponding underlying assets will not be equal because
virtually any binding legal restriction will make such
partnership interest less than the value of its corresponding
underlying assets.
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