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We need not discuss the burden of proof. We decide this
case on the preponderance of the evidence. Whether the
children’s interests were held in valid trusts or not is not
material to our decision.
Section 25.2511-1(h)(1), Gift Tax Regs., provides that a
transfer of property by a taxpayer to a corporation represents a
gift by the taxpayer to the other shareholders of the corporation
to the extent of their proportionate interests in the
corporation. In Shepherd v. Commissioner, 115 T.C. 376, 389
(2000), affd. 283 F.3d 1258 (11th Cir. 2002), we applied the
principle that, like a transfer of property to a corporation, a
transfer of property to a partnership for less than full and
adequate consideration may represent a gift to the other
partners.
In Shepherd, the taxpayer transferred real property and
stock to a newly formed family partnership in which he was a
50-percent owner and his two sons were each 25-percent owners.
Id. at 380-381. Rather than allocating contributions to the
capital account of the contributing partner, the partnership
agreement provided that any contributions would be allocated
pro rata to the capital accounts of each partner according to
ownership. Id. at 380. Because the contributions were reflected
partially in the capital accounts of the noncontributing
partners, the value of the noncontributing partners’ interests
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