Jack A. Upchurch - Page 4

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          in the Upchurch Family Limited Partnership to his son, Barc.                
          Petitioner reported these gifts on a timely filed 1996 Form 709,            
          United States Gift (and Generation-Skipping Transfer) Tax Return            
          (gift tax return).  This gift tax return reflected the total                
          value of the gifts as $641,267.  After application of the annual            
          exclusions and the unified credit available under the Federal               
          gift tax regime, the return showed a gift tax liability in the              
          amount of $4,169, which petitioner timely paid.                             
               Respondent reviewed petitioner’s 1996 gift tax return,                 
          requesting additional information on the transferred partnership            
          interests.  Petitioner responded with a valuation report                    
          indicating that in valuing the transferred interests in the                 
          Upchurch Family Limited Partnership, petitioner applied a total             
          of 62.5 percent in discounts (20 percent for lack of control, 20            
          percent for lack of marketability/liquidity, 15 percent for                 
          developmental risks, and 7.5 percent for rights of first                    
          refusal).  Respondent’s examiner disagreed with the valuation,              
          and on May 4, 1999, respondent sent to petitioner a so-called 30-           
          day letter proposing a $367,623 increase in petitioner’s gift tax           
          liability for the calendar year 1996 (30-day letter).  Attached             
          to the 30-day letter was the examiner’s report showing the                  
          corrected total value of the gifts as $1,549,538 (allowing no               
          cost of sale deduction for partnership assets and applying only a           
          15-percent discount to the transferred partnership interests).              

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Last modified: November 10, 2007