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limited interests. Each transferor receives a
percentage interest in profits, losses, and capital
that is strictly proportionate to the value that each
contributes (in relation to the total value
contributed). Based on claims of lack of
marketability, loss of control, and other value
diminishing factors, each interest is accorded some
loss of value (in comparison to the value of the
property exchanged therefore). F’s will and other
testamentary-type documents are executed
contemporaneously with the partnership agreement. They
disclose that F’s interest in FLP ultimately will pass
to S, D, and their children.
Does any of the transferors make a gift on account of his or
her contribution to the partnership for an interest of lesser
value? Most likely, S and D do not. The reason is that, in
pertinent part, section 25.2512-8, Gift Tax Regs., provides:
“[A] sale, exchange, or other transfer of property 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.” From S’s and D’s viewpoints, the
transfers to FLP are made in the ordinary course of business, at
least as that term is used in section 25.2512-8, Gift Tax Regs.
See Rosenthal v. Commissioner, 205 F.2d 505, 509 (2d Cir. 1953)
(“even a family transaction may for gift tax purposes be treated
as one ‘in the ordinary course of business’ as defined in * * *
[the predecessor to sec. 25.2512-8, Estate Tax Regs.] if each of
the parenthetical criteria is fully met”), revg. and remanding 17
T.C. 1047 (1951). For S and D, the transfers are motivated
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