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family limited partnerships with identical liquidation
restrictions. Shortly after formation, the taxpayers transferred
limited partnership interests to their children by gift. On
their Federal gift tax return, the taxpayers claimed substantial
discounts in the value of the interests compared to the value of
the underlying assets due to lack of control and lack of
marketability. The partnership agreements provided that the
partnerships would continue for 50 years.
The Court held:
Respondent’s reliance on TRLPA section 6.03 is
misplaced. TRLPA section 6.03 governs the withdrawal
of a limited partner from the partnership--not the
liquidation of the partnership. TRLPA section 6.03
sets forth limitations on a limited partner’s
withdrawal from a partnership. However, a limited
partner may withdraw from a partnership without
requiring the dissolution and liquidation of the
partnership. In this regard, we conclude that TRLPA
section 6.03 is not a “limitation on the ability to
liquidate the entity” within the meaning of section
25.2704-2(b), Gift Tax Regs.
Id. at 473. In sum, the Court concluded that the partnership
agreements in Kerr were not more restrictive than the limitations
that generally would apply to the partnerships under Texas law.
See id. at 472-474. Respondent acknowledges that Kerr is
applicable to this issue but argues that Kerr was incorrectly
decided. However, we find no reason to reach a result that is
different than the result in Kerr. Thus, section 2704(b) does
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