Estate of Bongard v. Commissioner

Wayne Bongard was the founder, CEO, and sole member of the board of directors of Empak, Inc. In 1986, he transferred some shares of Empak to the Wayne C. Bongard Irrevocable Stock Accumulation Trust (ISA Trust) for the benefit of his children. In 1996, he formed WCB Holdings, LLC to position Empak for an issuance of stock to obtain operating capital. Wayne’s son, Mark, was the manager of WCB Holdings. While Mark did have legitimate decision-making involvement, members who held the majority of the voting power (here, Wayne) could oversee those decisions and remove Mark. In 1996, Wayne and ISA Trust transferred all their Empak stock to WCB Holdings, with each receiving membership units in WCB Holdings. The next day, as part of Wayne’s estate planning, the Bongard Family Limited Partnership (BFLP) was established. Wayne and ISA Trust transferred all their Class B membership units in WCB Holdings to BFLP in exchange for interests in BFLP reflecting the value transferred. Wayne died in 1998, and his estate (plaintiff) asked for valuation discounts from the value of the Empak shares transferred to ISA Trust due to the interposition of both WBC Holdings and BFLP. The government (defendant) opposed, arguing that the full transfers should be included in his gross estate. The tax court then had to consider whether the transfers in question had been made in a bona fide sale for adequate and full consideration. Essentially, the court was considering whether the transferors had received partnership interests proportionate to the value of the property transferred and whether the transfers were bona fide sales, i.e., motivated by a legitimate and significant nontax purpose.