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The decedent never consulted with his children regarding how the
partnership was going to be operated or structured.
As part of the analysis the Court stated that the
applicability of the bona fide sale exception depends on two
requirements: “(1) A bona fide sale, meaning an arm’s-length
transaction, and (2) adequate and full consideration.” The
alleged nontax purpose for creating the partnership was to manage
and invest the assets contributed. However, the facts revealed
that no new investment strategies were employed by the
partnership, nor did any of the assets constitute working assets
as in Estate of Harrison v. Commissioner, supra. Moreover, the
estate failed to identify the property, if any, the decedent’s
children transferred to him or the partnership in exchange for
their partnership interests. See Estate of Reichardt v.
Commissioner, 114 T.C. 144, 155 (2000) (holding that there was no
adequate and full consideration where, among other things, the
decedent’s children transferred nothing to him or the
partnership). A circuitous recycling of value occurred because
the pooled assets were significantly composed of the same
property contributed by the trust to the partnership.
In Estate of Thompson v. Commissioner, T.C. Memo. 2002-246,
affd. 382 F.3d 367 (3d Cir. 2004), we again held the bona fide
sale exception was not applicable. On January 16, 1969, the
decedent established a revocable trust. The trust agreement was
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