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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