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interest, and ISA Trust transferred a portion of its WCB
Holdings class B membership units to BFLP in exchange for a
1-percent general partnership interest. On Dec. 10, 1997, D
made a gift of a 7.72-percent partnership interest to his
wife. D made no other gifts of his BFLP interest before his
death on Nov. 16, 1998.
The IRS issued a notice of deficiency to the estate on
Feb. 4, 2003, which, among other things, returned to
decedent’s gross estate, under secs. 2035(a) and 2036(a) and
(b), I.R.C., all of the Empak shares decedent had
transferred to WCB Holdings.
The estate argues that sec. 2036(a), I.R.C., is not
applicable to either D’s transfer of Empak shares to WCB
Holdings or D’s transfer of his WCB Holdings class B
membership units to BFLP because each transfer was a bona
fide sale for adequate and full consideration. The estate
argues, in the alternative, that even if the bona fide sale
exception was not satisfied by each transfer, D did not
retain a sec. 2036(a)(1) or (2), I.R.C., interest in the
property he transferred in either transaction.
Held: D’s transfer of his Empak stock to WCB Holdings
satisfied the bona fide sale exception because D possessed a
legitimate and significant nontax reason for the transfer.
Held, further, D’s transfer of WCB Holdings class B
membership units to BFLP did not satisfy the bona fide sale
exception.
Held, further, an implied agreement existed whereby D
retained a sec. 2036(a), I.R.C., interest in the WCB
Holdings class B membership units he transferred to BFLP.
Held, further, WCB Holdings class B membership units
allocable to the 7.72-percent partnership interest in BFLP D
gave to his wife are included in D’s gross estate under sec.
2035(a), I.R.C.
John W. Porter and Stephanie Loomis-Price, for petitioner.
Lillian D. Brigman and R. Scott Shieldes, for respondent.
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