TAM 8827003

Internal Revenue Service (I.R.S.) Technical Advice Memorandum

Issue: July 8, 1988

April 4, 1988

Section 2036 -- Transfers With Retained Life Estate (Included v. Not Included in Gross Estate)

2036.00-00 Transfers With Retained Life Estate (Included v. Not Included in Gross Estate)

TR-32-00223-87

Taxpayer's Name: * * *

Taxpayer's Address: * * *

Taxpayer's I.D. No.: * * *

Date of Death: * * *

Conference Held: * * *

LEGEND:

Decedent = * * *

A = * * *

B = * * *

Partnership = * * *

ISSUE 1:

Is the real property that was transferred by the decedent to Partnership includible in his gross estate under section 2036(a) of the Internal Revenue Code?

ISSUE 2:

For purposes of section 2501 of the Code, was the decedent's transfer of the real property a taxable gift?

FACTS:

The decedent owned approximately 150 acres of real property. (Although the land had been held as community property, we are characterizing it as the decedent's own property for purposes of simplification.) In August 1981, the decedent executed an agreement with his two adult children, A and B, in which Partnership was created. The decedent then transferred the real property to Partnership as his capital contribution. The stated value of the property at the time of the transfer was $1,725,000.

Under the terms of the agreement, the decedent was designated as the General Partner. A and B were designated as the Limited Partners. Based upon actual contribution, the decedent had an initial capital account of $1,725,000. A and B each had an initial capital account of $5,000.

THE PARTNERSHIP AGREEMENT:

The voting participation of Partnership was exercisable by the decedent to the extent of 49%; by A to the extent of 25.5%; and by B to the extent of 25.5%

Sections H and L of the partnership agreement provide for allocations of income. Section H(2) states:

The percentage participations of the Partners in capital, profit or loss, and net cash receipts shall be as follows for accounting, income tax, and cash flow purposes: . . .

c. The greater of either (i) THE NET CASH RECEIPTS ATTRIBUTABLE TO THE RENTAL OF CAPITAL ASSETS or arising from the sale or other disposition of such assets or (ii) a sum of net cash receipts equal to one percent (1%) (the 'Fixed Percentage') of the initial equity capital contributed by the General Partner and not theretofore repaid to the General Partner . . . This special allocation is a priority right payable to the extent of the net cash receipts . . . but if insufficient net cash receipts are available for the taxable year to pay this allocation, this allocation shall cumulate . . . THE SUM PAYABLE UNDER THIS ALLOCATION SHALL NOT EXCEED THE NET CASH RECEIPTS ATTRIBUTABLE TO THE RENTAL OF CAPITAL ASSETS or arising from the sale or other disposition of such assets . . .

d. SUBJECT TO THE PRIORITIES SET FORTH IN SECTION L(2), all other net cash receipts not specially ALLOCATED TO THE GENERAL PARTNER, AS PROVIDED IN PARAGRAPH (c) IMMEDIATELY ABOVE, shall be allocated as follows:

Percentage Participation

Partner In Other Net Cash Receipts

_______ __________________________

[Decedent] 5.0%

[A] 47.5%

[B] 47.5% [Emphasis added.]

Section L(2) of the agreement states:

* * * * [The] net cash receipts shall be distributed to the Partners according to their percentage participation, as allocated in Section H(2)(d), SUBJECT, HOWEVER, TO THE FOLLOWING PRIORITIES:

a. All net cash receipts available to the Partnership for the taxable year shall be paid as a first priority, to the General Partner according to the percentage participation set forth in Section H(2)(c), to satisfy the special allocation of net cash receipts payable to the General Partner pursuant to that Section, WHICH IS THE ALLOCATION TO THE GENERAL PARTNER OF THE GREATER OF THE NET CASH RECEIPTS ATTRIBUTABLE TO THE RENTAL . . . OF CAPITAL ASSETS or the fixed percentage.

b. After satisfying the first priority, all net cash receipts available to the Partnership for the taxable year shall be paid to the General Partner, as a second priority, to satisfy deficiencies in the first priority items that are carried over as cumulative arrearages.

c. After satisfying the first and second priorities, ALL THE NET CASH RECEIPTS available to the Partnership for the taxable year SHALL BE PAID to the General Partner, as a third priority, ACCORDING TO THE PERCENTAGE PARTICIPATION SET FORTH [FOR CAPITAL LOSSES] until the General Partner has been repaid the amount of the initial equity capital and additional equity capital he had contributed.

d. After satisfying the first, second and third priorities, all net cash receipts . . . shall be paid . . . according to the percentage participation set forth in Section H(2)(d). [Emphasis added.]

Under the agreement, capital losses were to be allocated to the decedent to the extent of 99%; to A to the extent of 0.5%; and to B to the extent of 0.5%. All other losses were to be allocated to the decedent to the extent of 90%; to A to the extent of 5%; and to B to the extent of 5%.

All losses allocable to a partner were chargeable to his capital account as a reduction. A partner with a negative capital account was required to restore enough capital to offset the negative balance. However, a partner was entitled to participate in net cash receipts, profit or loss, or capital items only if he had a positive capital account. A partner having a capital account of zero or a negative capital account could not participate in income or losses. Likewise, a partner who had been repaid his capital contribution could no longer participate in the profits and losses. Limited Partners were required to maintain capital accounts of at least $50.

Partnership assets could not be sold or exchanged (other than in the ordinary course of business) or financed without the consent of 51% of the voting participation. Similarly, the consent and affirmative vote of 51% of the voting participation was required for a dissolution of Partnership.

The General Partner could not assign or otherwise transfer his interest' nor could he voluntarily withdraw or otherwise terminate his participation. However, the Limited Partners could transfer their interests or withdraw from the Partnership with the consent of the General Partner.

A Partnership interest was to terminate upon the death or incapacity of the respective partner. Upon a partner's death, the interest was to vest in his heir or legatee who could be admitted as a Limited Partner. On the death of the General Partner, the Partnership could continue upon the designation of a substituted General Partner.

THE USE OF THE REAL PROPERTY:

The real property has always been used for agricultural purposes. At some time, either before or upon the formation of Partnership, the real property was leased to a ranching venture operated by the decedent, A, and an unrelated third person. Since then, the land has been continually leased for the same purposes.

THE LIMITED PARTNERS' PARTICIPATION:

Section K(1) of the agreement prohibited the participation of any of the limited partners in the conduct of Partnership. It states:

NO LIMITED PARTNER SHALL TAKE ANY PART IN THE CONDUCT OF THE BUSINESS OR CONTROL OF THE ASSETS of the Partnership or in the sale, leasing, financing, or refinancing of any of its assets, or have any right or authority to act for or bind the Partnership. [Emphasis supplied.]

It is represented that A rendered services to Partnership.

THE APPRECIATION OF THE REAL PROPERTY:

The decedent died in 1985. On the federal estate tax return filed for the decedent's estate, the executor indicated a value of $1,998,089 for the decedent's partnership interest. The indicated value included income that had not yet been paid to the decedent and a minimal portion of appreciation.

Although the real property was stated to be worth $1,725,000 on the date of the transfer to Partnership, the property appreciated significantly so that, on the date of the decedent's death, it was worth more than $5,900,000. Thus, the property appreciated in value by at least $4,175,000.

Except for the minimal portion, the executor did not attribute any of the $4,175,000 post-transfer appreciation to the decedent's interest. Rather, the post-transfer appreciation of the real property was to be attributed to the value of the limited partners' interests. Thus, the value of the decedent's interest in Partnership was returned at approximately the same value ($1,750,000) that was stated for the real property in 1981. Based on this return value, A's and B's respective cash investments of $5,000 would have each increased in value to approximately $2,000,000, in 1985, to include almost all of the post-transfer appreciation.

LAW AND ANALYSIS:

Section 2036(a) of the Code provides that the value of the gross estate shall include the value of all property to the extent of any interest therein of which the decedent has at any time made a transfer (except in case of a bona fide sale for an adequate and full consideration in money or money's worth), by trust or otherwise, under which the decedent retained for any period which does not in fact end before the decedent's death --

(1) the possession or enjoyment of, or the right to the income from, the property.

Section 2043(a) of the Code provides that if any one of the transfers described in sections 2035 to 2038 is made for a consideration in money or money's worth, but is not a bona fide sale for an adequate and full consideration in money or money's worth, there shall be included in the gross estate only the excess of the fair market value at the time of death of the property otherwise to be included on account of such transaction, over the value of the consideration received therefor by the decedent.

Section 2501 of the Code imposes a tax for each calendar year on the transfer of property by gift.

Section 2511 of the Code provides that the gift tax shall apply whether the transfer is in trust or otherwise, whether the gift is direct or indirect, and whether the property is real or personal, tangible or intangible.

Section 2512(a) of the Code provides that if the gift is made in property, the value thereof at the date of the gift shall be considered the amount of the gift.

Section 2512(b) of the Code provides that where property is transferred for less than an adequate and full consideration in money or money's worth, then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift, and shall be included in computing the amount of gifts made during the calendar year.

Section 20.2036-1(a) of the Estate Tax Regulations provides that a decedent's gross estate includes under section 2036 the value of any interest in property transferred by the decedent, except to the extent that the transfer was for an adequate and full consideration in money or money's worth, if the decedent retained for any period which does not in fact end before the decedent's death, the right to the income of the transferred property.

Section 20.2043-1(a) of the regulations provides that the transfers described in sections 2035 through 2038 are not subject to the federal estate tax if made in a transaction which constituted a bona fide sale for an adequate and full consideration in money or money's worth. To constitute a bona fide sale for an adequate and full consideration in money or money's worth, the transfer must have been made in good faith, and the price must have been an adequate and full equivalent reducible to a money value. If the price was less than such a consideration, only the excess of the fair market value of the property (as of the applicable valuation date) over the price received by the decedent is included in ascertaining the value of the gross estate.

Section 25.2511-2(b) of the Gift Tax Regulations provides that as to any property of which the donor has so parted with dominion and control as to leave in him no power to change its disposition, the gift is complete.

Section 25.2512-1 of the regulations provides that if a gift is made in property, its value at the date of the gift shall be considered the amount of the gift. The value of the property is the price at which such property would change hands between a willing buyer and a willing seller.

Section 25.2512-3(a) of the regulations provides that care should be taken to arrive at an accurate valuation of any interest in a business which the donor transfers without an adequate and full consideration in money or money's worth. The fair market value of any interest in a partnership is the net amount which a willing purchaser would pay for the interest to a willing seller, neither being under any compulsion to buy or to sell and both having reasonable knowledge of the relevant facts.

Section 25.2512-8 of the regulations provides that transfers reached by the gift tax are not confined to those only which, being without a valuable consideration, accord with the common law concept of gifts, but embrace as well sales, exchanges, and other dispositions of property for a consideration to the extent that the value of the property transferred by the donor exceeds the value in money or money's worth of the consideration given therefor. However, a sale, exchange, or other transfer of property made in the ordinary course of business (a transaction which is bona fide, at arm's length, and free from any donative intent) will be considered as made for an adequate and full consideration in money or money's worth. A consideration not reducible to a value in money or money's worth is to be wholly disregarded and the entire value of the property transferred constitutes the amount of the gift.

ISSUE 1:

The question presented focuses on the decedent's right to receive 'the net cash receipts attributable to the rental of capital assets,' as provided in section H(2)(c) of the partnership agreement. If this right is tantamount to a retained right to the income from the transferred real property and the transfer was donative, the property is includible in the decedent's gross estate under the inclusion rules of section 2036(a)(1).

1) DID THE DECEDENT RETAIN THE RIGHT TO THE INCOME FROM THE REAL PROPERTY?

Under the section 2036(a)(1), if a decedent retained the right to the income from gratuitously transferred property for any period which did not, in fact, end before the decedent's death, the transferred property is includible in the gross estate. See Estate of Nicol v. Commissioner, 56 T.C. 179 (1971), (in which the decedent conveyed the legal title to farm property but retained the right to its rent); Estate of Whitt v. Commissioner, 751 F.2d 1548 (11th Cir. 1985), (in which the decedent retained the right to the income from transferred farmland); Estate of Cooper v. Commissioner, 74 T.C. 1373 (1980), (in which the decedent transferred bonds but retained coupons representing the right to receive interest). See also, Estate of Kinney v. Commissioner, 39 T.C. 728 (1963); Estate of Lee v. Commissioner, 33 T.C. 1064 (1960), (both applying Section 2036(a)(1) with respect to trust interests).

In McNichol's Estate v. Commissioner, 265 F.2d 667 (3d Cir. 1959), the decedent conveyed income-producing real property to his children. However, there was a contemporaneous understanding that he would retain the right to the income. In holding that the property was includible in the decedent's gross estate under the predecessor statute to section 2036(a)(1), the court stated:

[O]ne of the most valuable incidents of income-producing real estate is the rent which it yields. HE WHO RECEIVES THE RENT IN FACT ENJOYS THE PROPERTY. [Emphasis supplied.]

Consequently, in the case of income-producing property, the reservation of the right to the rent is tantamount to a reservation of the right to the income from the property, within the meaning of section 2036(a). See Nicol, above cited, at 182 (in which the court characterized reserved rental income as 'the fruits of ownership'). Furthermore, it is not necessary for the decedent to have actually received the rental income. Rather, inclusion under section 2036(a)(1) is based upon the retained RIGHT to the income rather than its actual receipt. McNichol's Estate, above cited, at 671; H.R. Rep. No. 708, 72d Cong., 1st Sess. 46, 1939-1 C.B. (Pt. 2) 491; S. Rep. No. 665, 72d Cong., 1st Sess. 49, 1939-1 C.B. (Pt. 2) 532.

Under applicable local law, no partner is entitled to any individual partnership asset or the income produced by it unless the partnership agreement so provides. See Phillips v. C. Palomo & Sons, 270 F.2d 791 (5th Cir. 1959); Dunn v. Summerville, 669 S.W.2d 319 (Sup. Ct. Tex. 1984); 57 Tex. Jur. section 37 (3d ed. 1987). However, the partnership agreement may be drafted by the partners to specifically allocate certain partnership property or the income from it to a particular partner. Cf. Dobson v. Dobson, 594 S.W.2d 177 (Civ. App. Tex. 1980).

In this case, sections H(2)(c) and L(2)(a) of the partnership agreement specifically reserved the rent from the capital assets for the decedent. In addition, the lease arrangement for the real property (the only capital asset of Partnership other than cash of less than $10,000) continued from the date of the decedent's transfer through the date of his death. Consequently, based on the explicit language of the agreement and the facts and circumstances of this case, we conclude that the decedent retained the right to receive the rent from the transferred real property for a period which did not in fact end before his death.

Because a reservation of the right to receive rent from income-producing property is regarded as a reservation of its income, the decedent retained the right to the income from the transferred property, within the meaning of section 2036(a)(1). Compare Estate of Boykin v. Commissioner, T.C. Memo 1987-134, involving a recapitalization of stock of a closely held family corporation and a transfer of the common shares. In Boykin, as part of the recapitalization, 1) the yield of the common shares was decreased by the issuance of high-yield preferred shares to the common shareholders, and 2) the common shares were then transferred to trusts for the benefit of the transferors' children. The decedent was one of the transferors. In Boykin, the court concluded that the decedent did not retain the right to the income from the transferred common shares by retaining his high-yield preferred shares. The court's conclusion was based on the premise that there was no relationship (or nexus) between the retained income rights of the preferred shares and the income otherwise payable on the transferred common shares. The facts in the present case are distinguishable from those of Boykin in that, in this case, the decedent's income rights were specifically based on the rent from the transferred property. In this case, therefore, there is a direct relationship (or nexus) between the decedent's retained income rights and the income from the transferred property. Consequently, the rationale of Boykin is not applicable.

Similarly, in Estate of Harrison v. Commissioner, T.C. Memo 1987-8, the decedent transferred property to a partnership and received, in exchange, general partnership and limited partnership interests. Because the decedent (as a general partner) acquired the right to liquidate the partnership, the government contended that he retained the right to the possession and income of the transferred property, for purposes of section 2036(a). The court, however, held that 1) there was no relationship between the right to receive proceeds of liquidation and the property transferred to the partnership, and 2) therefore, the decedent did not retain the right to either the possession or income of the property by reason of the liquidation right. As with Boykin, the rationale of Harrison is not applicable here because, in this case, there was a direct relationship between the decedent's retained right to receive the rent and the transferred rental property. We further note that, in Harrison, an essential factor in the court's determination (that section 2036(a) was not applicable) was a finding, based upon stipulated facts, that the transfer was made for a full and adequate consideration.

2. WAS THE DECEDENT'S TRANSFER DONATIVE?

Sections 2036(a) and 2043(a) provide a special exclusion from the general rule for inclusion under section 2036(a). That is, to the extent that the property was transferred by the decedent pursuant to a bona fide sale for an adequate and full consideration in money or money's worth, it is not includible in the gross estate. Only the excess of the fair market value of the property on the date of death (over the value of the consideration received by the decedent) is includible in the gross estate. Nevertheless, transactions within a family group are subject to special scrutiny and the presumption is that a transfer between family members is not a bona fide sale. Estate of Reynolds v. Commissioner, 55 T.C. 172 (1970). See also Harwood v. Commissioner, 82 T.C. 239 (1984).

To constitute a full consideration in money or money's worth within the meaning of section 2036(a) and section 2043(a), the consideration must have been an adequate and full equivalent to the value of the transferred property. Section 20.2043-1(a). Likewise, any particular consideration must be reducible to a money value. Section 20.2043-1(a) of the regulations. That is, the consideration must be of such nature that, if it were receivable or held by the decedent at the time of death, it would be includible in the the gross estate (as property in which the decedent had an interest at death). See Lowndes, Kramer & McCord Federal Estate and Gift Taxes sections 14.3, 14.4 63d ed. 1974).

The value of any consideration received by a decedent, in the context of a section 2036 transfer, is determined as of the date of the transfer. United States v. Righter, 400 F.2d 344 (8th Cir. 1968). Furthermore, in computing the consideration received by a decedent, the value of the decedent's retained life interest is not regarded as consideration paid to the decedent. Rather, the full value of the transferred property (rather than merely a remainder interest) is treated as passing from the decedent at the time of the transfer. United States v. Allen, 293 F.2d 916 (10th Cir. 1961).

In this case, the decedent received a partnership interest as consideration for the real property transferred to Partnership. The pivotal question, in determining whether the transfer was donative, for purposes of sections 2036(a) and 2043(a), is the extent to which the partnership interest is regarded as consideration in money or money's worth received by the decedent.

The fair market value of the partnership interest acquired by the decedent on the date of the transfer is a factual question for determination by the District Director. See, for example, Rev. Rul. 80-186, 1980-2 C.B. 280. However, a determination of the rights attributable to the interest (and whether the rights are reducible to a money value as consideration in money or money's worth) is a question of law. See Estate of Watts v. Commissioner, 823 F.2d 483 (11th Cir. 1987); section 25.2512-8.

Under applicable local law, the rights attributable to a partner's interest are determined by the partnership agreement. Because the provisions of the agreement are controlling, the Uniform Partnership Act and Uniform Limited Partnership Act are applicable only when the partnership agreement is silent. Park Cities Corporation v. Byrd, 534 S.W.2d 668 (Sup. Ct. Tex. 1976); Dobson v. Dobson, 594 S.W.2d 177 (Civ. App. Tex. 1980); 57 Tex. Jur., above cited, at section 32.

In this case, certain rights were specifically reserved to the decedent's interest by the partnership agreement. Therefore, in determining the value of the decedent's interest in this particular case, it is appropriate to consider each of the rights and to determine whether they are reducible to a money value or are otherwise treated as a consideration in money or money's worth, for purposes of sections 2036(a) and 2043(a). For example, the decedent was entitled to receive the net rent from the transferred property. Nevertheless, in determining the consideration received by the decedent, the retained right to the rent from the transferred property is not regarded as consideration in money or money's worth. See United States v. Allen, above cited, at 918. Likewise, the decedent was entitled to certain allocations of losses. Because potential partnership income tax losses 1) are not reducible to an adequate and full equivalent of a money value, and 2) are not of such nature as to be includible in a decedent's gross estate, the losses, also, are not treated as consideration in money or money's worth. Consequently, in determining the value of the partnership interest received by the decedent, neither the reserved rent nor the losses allocable to the decedent's capital account are regarded as consideration received for the transferred real property.

In addition, the decedent acquired an interest that would ultimately be barred from participation in profits and losses when his capital account was reduced to zero. Although certain excess income was to be distributed to him in reduction of his capital account, all losses allocable to him were also to be debited against the capital account. See, for example, Park Cities Corporation, above cited, at 674. Consequently, the decedent's interest was subject to a buy-out based upon the allocation of losses and certain excess partnership income. Since 1) the buy-out could have conceivably been effectuated entirely by losses (or by a combination of losses and excess income), and 2) losses are not regarded as consideration in money or money's worth, the consideration receivable in the buy-out does not have any value for estate and gift tax purposes. Section 20.2043-1 and section 25.2512-8.

We note that the decedent could not require a return of his capital contribution upon request. Nor could he use his position as the general partner to sell or finance the property and distribute the funds to himself. Because the decedent, as the managing partner, was held to the strictest of fiduciary standards, he was prohibited from 1) taking any action to the detriment of the Partnership or the Limited Partners, or 2) promoting his own interests over the interests of the Limited Partners and the business of the Partnership. See Conrad v. Judson, 465 S.W.2d 819 (Civ. App. Tex. 1971); United States v. Byrum, 408 U.S. 125, 1972-2 C.B. 518. The agreement likewise restricted the decedent's powers by prohibiting any sale of assets (other than in the ordinary course of business) or financing without the consent of 51% of the voting participation. Furthermore, the decedent's right to a return of his capital contribution could have been terminated by the complete reduction of his capital account through the allocation of losses (or the allocation of a combination of losses and excess income). Therefore, it was uncertain, at the time of the transfer, the extent to which the decedent would have ultimately received consideration in money or money's worth in repayment of his capital contribution. See, for example, Park Cities Corporation, above cited, at 674.

In this case, 49% of the voting participation was attributable to the decedent's partnership interest. He, therefore, acquired a minority interest. See, for example, Harwood, above cited, at 268. Consequently, a minority discount may be applicable in the valuation. Estate of Ward v. Commissioner, 87 T.C. 78 (1986). In addition, a discount for lack of marketability may also be applicable. Estate of Gallo v. Commissioner, T.C.Memo. 1985-363; Koffler v. Commissioner, T.C. Memo 1978-159; Estate of Andrews v. Commissioner, 79 T.C. 938 (1982).

Because the valuation of the consideration received by the decedent is a matter for the District Director, the determination of whether the transfer was donative is, likewise, a question for ultimate determination by the District Director. Nevertheless, inasmuch as the decedent retained the right to the income from the transferred real property, the property is includible in the decedent's gross estate under section 2036(a) to the extent that the value of the property, on the decedent's date of death, exceeded the value of the consideration received therefor (determined within the guidelines discussed above).

ISSUE 1 CONCLUSION:

The decedent retained the right to the income from the transferred real property for a period which did not in fact end before his death. The property is includible in the decedent's gross estate under section 2036(a) to the extent that the transfer was not a bona fide sale for an adequate and full consideration in money or money's worth, as determined by the District Director.

ISSUE 2:

Under section 25.2512-8 of the regulations, a sale or other transfer of property made in the ordinary course of business (a transaction which is bona fide, at arm's length, and free from any donative intent) will be considered as made for an adequate and full consideration in money or money's worth.

The issue presented considers whether 1) the decedent's transfer was made in the ordinary course of business, within the meaning of section 25.2512- 8, and 2) if it was not made in the ordinary course of business, whether the transfer was gratuitous in whole or in part.

Similar to the facts in this case, Harwood, above cited, involved an intra- family transfer of an interest in a family-owned partnership. In Harwood, the donor transferred her fractional partnership interest to her two adult children in exchange for a promissory note. In holding the transaction to be a gift rather than a sale in the ordinary course of business, the court stated at 258:

We do not believe that a transfer by a [parent] to her [children] of her interest in the family partnership, structure totally by the family accountant, with no arm's length bargaining, can be characterized as a transaction in the ordinary course of business.

In this case, 1) the intra-family transaction involved a parent and two adult children in the context of a close family relationship; 2) the facts do not indicate that there were bona fide arm's length negotiations; 3) the decedent exchanged a fee interest in real property for a low-yield minority interest that was subject to termination during his lifetime; 4) neither A nor B could participate in the conduct of the partnership's business; 5) all active participation in the decision making and management of the partnership was relegated to the decedent as the general partner; and 6) the partnership agreement did not provide for continuity of family ownership because the decedent's interest could have been bequeathed to any transferee upon the decedent's death. We, therefore, conclude that, like the transfer in Harwood, the transfer in this case lacked the elements of a transfer in the ordinary course of business within the meaning of section 25.2512-8.

As heretofore indicated, the determination of whether the partnership interest represented a full and adequate consideration in money or money's worth for the transferred real property is a factual determination to be made by the District Director. Consequently, the decedent made a gift, for purposes of section 2501 of the Code to the extent that the value of the transferred real property exceeded the value of the partnership interest received by the decedent. Section 25.2512-8.

CONCLUSION ISSUE 2:

To the extent that the value of the transferred real property exceeded the value of the partnership interest received by the decedent, the transfer was a taxable gift for purposes of section 2501 of the Code.

A copy of this Technical Advice Memorandum should be given to the taxpayer. Section 6110(j) of the Code provides it may not be used or cited as precedent.

This document may not be used or cited as precedent. Section 6110(j)(3) of the Internal Revenue Code.