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B. Whether the Transfer of the Padaro Lane Property by
Decedent’s Trust for 14,500 B Units in Spindrift Was a Bona
Fide Sale for Adequate and Full Consideration
Section 2036(a)(1) does not apply if the transfer of
property was part of a bona fide sale for adequate and full
consideration. The estate contends that the transfer by
decedent’s trust of the fee simple interest in the Padaro Lane
property to the partnership was a bona fide and genuine transfer
for which decedent’s trust received adequate and full
consideration; i.e., 14,500 of the 14,504 limited partnership
units (99.97242 percent).
To constitute a bona fide sale for adequate and full
consideration, the transfer of the property must be made in good
faith. Estate of Thompson v. Commissioner, supra at 383; sec.
20.2043-1(a), Estate Tax Regs. Such a sale requires that the
transfer be made for a legitimate nontax purpose. Estate of
Bongard v. Commissioner, 124 T.C. ___, ___ (2005) (slip op. at
39). Transactions between family members are subject to
heightened scrutiny to ensure that the transaction is not a
disguised gift. See Harwood v. Commissioner, 82 T.C. 239, 258
(1984), affd. without published opinion 786 F.2d 1174 (9th Cir.
1986); Estate of Stone v. Commissioner, T.C. Memo. 2003-309; cf.
Estate of Reichardt v. Commissioner, supra. As discussed next,
the transfer of the Padaro Lane property to Spindrift was not
made in good faith.
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