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its formation until 1999. Austin and Dennis signed the KPLP
agreement as cotrustees of the living trust. The KPLP agreement
provided for management fees to be paid to the general partner
“to be measured by the time required to manage and administer the
partnership, by the value of property under the general
partner(s) administration, and by the responsibilities the
general partner(s) assume in discharging of the duties of
office.” The general partner was to decide the amounts of the
management fees. The KPLP agreement also required KPLP to
reimburse the general partner for “all reasonable and necessary
business expenses incurred in managing and administering the
partnership.”
KPLP was not funded and did not commence business until
spring 1995; therefore, KPLP did not file a tax return for 1994.
In 1995, the living trust transferred the money market account
with a balance of $37,841 to KPLP. In exchange, the living trust
received a 2-percent general partnership interest. Also in 1995,
the Korbys transferred the following assets to KPLP: (1) Stocks
valued at $1,330,442; (2) State and municipal bonds valued at
$449,378; and (3) U.S. savings bonds worth $71,043 (the
transferred assets).3 In exchange, Austin and Edna received a
98-percent limited partnership interest. Austin and Edna then
3In 1994, the Korbys reported income from these assets of
$75,429.
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Last modified: May 25, 2011