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distributions from the partnership, Estate of Thompson v.
Commissioner, supra; Estate of Harper v. Commissioner, supra; the
partners’ commingling of partnership funds with their own, Estate
of Harper v. Commissioner, supra, and the taxpayer’s actual
failure to transfer the property to the partnership, Estate of
Hillgren v. Commissioner, supra.
The Court of Appeals for the Fifth Circuit recently decided
a case in this area, Kimbell v. United States, 371 F.3d 257, 258
(5th Cir. 2004). In Kimbell, the decedent transferred assets
including $2.5 million in cash, an active oil and gas business,
and royalties to a trust. The trust contributed the property to
a family limited partnership and received a 99-percent pro rata
partnership interest in return. The other partner was a limited
liability company (the LLC) owned by the decedent, her son, and
his wife. The LLC contributed $25,500 in exchange for a 1-
percent general partnership interest. The oil and gas working
assets constituted 11 percent of the partnership’s assets. The
decedent retained over $450,000 in assets for her personal
expenses.
The court separated the bona fide sale exception into two
prongs: (1) Whether the transaction qualifies as a bona fide
sale; and (2) whether the decedent received adequate and full
consideration. The court first examined the adequate and full
consideration language and set forth an objective inquiry. Id.
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