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Generation-Skipping Transfer) Tax Return, were filed on behalf of
decedent and were received by the Internal Revenue Service on
October 16, 1995, and November 2, 1995, respectively. The gift
tax return reported the .4-percent general and 24-percent limited
partnership interests given to Michael and the .6-percent general
and 36-percent limited partnership interests given to Lynn. The
estate tax return included as part of decedent’s gross estate the
Trust’s 39-percent limited partnership interest in HFLP.
Notices of deficiency were issued with respect to the above
returns on October 21, 1998. As previously stated, respondent
therein advanced a primary and an alternative position. Under
the primary position, the full value of the assets held by HFLP
was included in decedent’s gross estate, and prior taxable gifts
were reduced to $0, resulting in an estate tax deficiency of
$331,171 and no deficiency in gift tax. Under the alternative
position, respondent determined an estate tax deficiency of
$150,496 and a gift tax deficiency of $180,675.
OPINION
I. Contentions of the Parties
The parties in this case disagree regarding how properly to
treat the partnership interests transferred by decedent to his
children during life and the interest included through the Trust
in his estate at death. Respondent contends that the full fair
market value of the assets contributed to HFLP is includable in
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