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passive nature of transferred assets is generally not
determinative in a section 2036 analysis of their transfer to a
family limited partnership, we believe the lack of activity by
Austin with respect to the KPLP assets is relevant to the issue
of whether the payments the living trust received from KPLP were
management fees.
All these facts, taken together, show that Austin and Edna
had an implied agreement with their sons that Austin and Edna
were entitled to the income from the assets they transferred to
KPLP. KPLP was formed as a testamentary vehicle designed to
transfer Austin’s and Edna’s assets to their sons during their
lives at a significant discount, while retaining for Austin and
Edna the economic enjoyment of those assets.
B. The Bona Fide Sale Exception
Having concluded that Austin and Edna retained the enjoyment
of and right to income from the assets they transferred to KPLP,
we must now determine whether section 2036 is nonetheless
inapplicable as a result of the bona fide sale exception. We
recently held in Estate of Bongard v. Commissioner, 124 T.C. ,
___ (2005) (slip. op. at 39), that in the context of family
limited partnerships, the bona fide sale exception is met where
the record establishes the existence of a legitimate and
significant nontax reason for the transfer, and the transferors
received partnership interests proportionate to the value of the
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