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Dauth v. Commissioner, 42 B.T.A. 1181, 1189 (1940) (stating “The
test to determine whether a transaction is a bona fide
transaction [for Federal income tax purposes] is described by the
term ‘arm’s length’, or, in other words, Was the transaction
carried out in the way that the ordinary parties to a business
transaction would deal with each other?”). The bona fide sale
exception has not been limited to transactions involving
unrelated parties as respondent’s argument implies. See Estate
of Stone v. Commissioner, T.C. Memo. 2003-309.
It is axiomatic that intrafamily transactions are subjected
to a higher level of scrutiny, but this heightened scrutiny is
not tantamount to an absolute bar. In that connection, we have
already concluded that decedent and ISA Trust had mutual
legitimate and significant nontax reasons for forming WCB
Holdings. In addition, both decedent and ISA Trust received
interests in WCB Holdings proportionate to the number of shares
transferred. We believe that had this transaction occurred
between two unrelated parties the majority interest holder in
Empak would have received similar powers to those the decedent
received via WCB Holdings’s member control agreement. An
important purpose for creating WCB Holdings was to position Empak
for a corporate liquidity event, and the record does not contain
any credible evidence that unrelated parties would not have
agreed to the same terms and conditions. Given these facts, we
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