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entity at issue were proportionate to the value of the property
each contributed to the entity; (2) the respective assets
contributed were properly credited to the capital accounts of the
transferors; (3) distributions from the entity required a
negative adjustment in the distributee’s capital account; and (4)
there existed a legitimate and significant nontax reason for
engaging in the transaction. Given these circumstances, we
concluded that the resultant discounted value attributable to
entity interest valuation principles was not per se to be equated
with inadequate consideration. Id. at __ (slip op. at 49-50).
The Court of Appeals for the Third Circuit has likewise
opined that while the dissipated value resulting from a transfer
to a closely held entity does not automatically constitute
inadequate consideration for section 2036(a) purposes, heightened
scrutiny is triggered. Estate of Thompson v. Commissioner, 382
F.3d at 381. To wit, and consistent with the focus of the Court
of Appeals in the bona fide sale context, where “the transferee
partnership does not operate a legitimate business, and the
record demonstrates the valuation discount provides the sole
benefit for converting liquid, marketable assets into illiquid
partnership interests, there is no transfer for consideration
within the meaning of � 2036(a).” Id.
In reaching this conclusion, the Court of Appeals referenced
the “recycling” of value concept first articulated by this Court
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