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assets up, and the establishment of a centralized management
structure. Additionally, the court rejected the Commissioner’s
argument that the LLC’s interest was de minimis since it found no
principle in partnership law that required partners to own “a
minimum percentage interest in the partnership for the entity to
be legitimate”. Id. at 268.
Recently, the Court of Appeals for the Third Circuit
affirmed Estate of Thompson v. Commissioner, supra, in Estate of
Thompson v. Commissioner, 382 F.3d 367 (3d Cir. 2004). Focusing
on the adequate and full consideration language, the court stated
an inter vivos transfer in exchange for assets of a lesser value
should trigger heightened scrutiny into the substance of the
transaction. Id. at 381. The Third Circuit found that neither
partnership engaged in transactions rising to the level of
legitimate business operations that provided the decedent with a
substantive nontax benefit. Id. at 379. This determination was
supported by the partnerships’ allocating income produced by
certain assets to the contributing partner, and the testamentary
nature of one of the partnership’s lending practices. Even
though the estate presented evidence that one of the partnerships
engaged in a real estate investment, the testamentary nature of
the transfer and the subsequent operation of the partnership
outweighed any legitimizing effect of that investment. In
addition, the Court of Appeals found that the decedent
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