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partnerships was not “motivated primarily by legitimate business
concerns”. A reason for employing the limited partnership
concept was to resolve the Stones’ children’s concerns. There
were significant intrafamily disputes with regard to the Stones’
assets which led to litigation.
The Court found that the future management of the Stones’
assets by the children qualified as a legitimate business concern
since they were going to succeed their parents in operating the
business. The children actively managed the assets that were
contributed to the partnership in which they had their respective
interests. These facts supported a finding that each partnership
had economic substance and was not merely a circuitous recycling
of value. Additionally, the Stones were both in good health for
most of the time the negotiations concerning the formation of the
partnerships were taking place, and they retained sufficient
assets outside of the partnerships to meet their personal needs.
We also concluded that the terms of the transactions reflected
arm’s-length dealing. The Stones determined which assets would
be contributed to the partnerships, and Mr. Stone’s attorney
drafted the partnership agreements, but the children each had
counsel representing their individual interests.
The adequate and full consideration prong was also deemed
satisfied. All partners in each partnership received interests
proportionate to the fair market value of the assets they each
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