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1. Bona Fide Sale
Respondent argues that the creation of WCB Holdings did not
occur as the result of an arm’s-length transaction, and
consequently, was not a bona fide sale. In Estate of Harper v.
Commissioner, T.C. Memo. 2002-121, relying partially on Estate of
Goetchius v. Commissioner, 17 T.C. 495, 503 (1951), we determined
that the bona fide sale exception in section 2036(a) is
applicable only where there was an arm’s-length transaction.
Respondent appears to assert that an arm’s-length
transaction cannot occur between related parties. An arm’s-
length transaction has been defined as “A transaction between two
unrelated and unaffiliated parties”, or alternatively, a
transaction “between two parties, however closely related they
may be, conducted as if the parties were strangers, so that no
conflict of interest arises.” Black’s Law Dictionary 1535 (8th
ed. 2004). A previous edition of Black’s Law Dictionary stated
that an arm’s-length transaction was the standard for testing
whether the resulting terms and conditions of a transaction were
the same as if unrelated parties had engaged in the same
transaction. See Black’s Law Dictionary 100 (5th ed. 1979)
(stating that “in testing whether $10,000 is an ‘arm’s length’
price [for the sale of property] it must be ascertained for how
much the corporation could have sold the property to a
disinterested third party in a bargained transaction”); see also
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