-45-
the partnership’s creation. * * * [Estate of Bongard v.
Commissioner, 124 T.C. __, __ (2005) (slip op. at 39).]
Bona Fide Sale
The Court of Appeals for the Third Circuit, to which appeal
in this case would normally lie, has emphasized that the bona
fide sale prong will only be met where the transfer was made in
good faith. Estate of Thompson v. Commissioner, 382 F.3d 367,
383 (3d Cir. 2004) (citing sec. 20.2043-1(a), Estate Tax Regs.),
affg. T.C. Memo. 2002-246. In the context of family entities,
the Court of Appeals set forth the following test: “A ‘good
faith’ transfer to a family limited partnership must provide the
transferor some potential for benefit other than the potential
estate tax advantages that might result from holding assets in
the partnership form.” Id. Stated otherwise, “if there is no
discernable purpose or benefit for the transfer other than estate
tax savings, the sale is not ‘bona fide’ within the meaning of
� 2036.” Id. The Court of Appeals further indicated that while
this test does not necessarily demand a transaction between a
transferor and an unrelated third party, intrafamily transfers
should be subjected to heightened scrutiny. Id. at 382.
The approach of the Court of Appeals for the Third Circuit
correlates with this Court’s requirement of a legitimate and
significant nontax purpose for the entity. This Court has
expressed this requirement using the alternate phraseology of an
arm’s-length transaction, in the sense of “the standard for
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