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the Federal estate tax system by preventing a depletion of an
estate by testamentary-like inter vivos transfers for less than
an adequate and full consideration. See United States v. Estate
of Grace, 395 U.S. 316 (1969).
Whether the value of consideration received in the form of
an interest in a partnership is “adequate and full” within the
meaning of section 2036(a) is a valuation issue. For this
purpose, I believe that the Court must determine the fair market
value of the partnership interest as of the date of the transfer,
applying the well-established valuation principles that take into
account discounts and/or premiums inhering in that fair market
value.1 The value of the transferred property that would have
been included in the transferor’s gross estate absent the
transfer would have been determined under such a valuation
approach. I believe it only natural to conclude that the same
approach should apply to determine the value of the consideration
that would have replaced the transferred property in the
transferor’s gross estate had the transferor died immediately
1 The Court need not determine this fair market value,
however, if the record establishes that the partnership interest
was received in an ordinary commercial transaction. In that
case, the values of the transferred and received properties would
be considered to be equal. See sec. 25.2512-8, Gift Tax Regs.
(transfers “made in the ordinary course of business (a
transaction which is bona fide, at arm’s length, and free from
any donative intent), will be considered as made for an adequate
and full consideration in money or money’s worth”); see also
Harper v. Commissioner, T.C. Memo. 2002-121.
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