Estate of Jones v. Commissioner

In 1995, for estate- and business-planning purposes, W.W. Jones II formed two partnerships with his children, which he used to hold, manage, and distribute two family ranches. Upon the creation of the partnerships, Jones contributed significant amounts of real property, along with personal property and cattle, for which he received a significant majority in the limited partnership interests in the businesses. The partnership agreements for the businesses had provisions that limited the ability of partners to leave the partnership or liquidate the business, with the plan being to keep the land in the family for at least 35 years. The restrictions on liquidation were no more restrictive than the laws of Texas regarding partnership interests. Immediately after creating the partnerships, Jones gifted most of his limited partnership interests to his children, the other partners. When Jones filed his 1995 federal gift-tax return, his accountant, Charles L. Elliott, Jr., included a valuation report that reported significant discounts on the value of the gifted interests based on their limited ability to sell on a secondary market and their lack of marketability. The Internal Revenue Service (IRS) determined that the estate was deficient for $4,412,527 in federal gift taxes from the 1995 transfers. Jones’s estate (plaintiff) petitioned the United States Tax Court, arguing that no additional tax was owed.