Estate of Thompson v. Commissioner
United States Court of Appeals for the Third Circuit
382 F.3d 367 (2004)
- Written by Eric Miller, JD
Facts
Theodore Thompson transferred securities and other assets with a total value of $2.8 million into two family limited partnerships (FLPs) in exchange for significant interests in both. Neither of the two FLPs conducted legitimate business operations; Thompson’s financial advisor had recommended the inter vivos transfers as a way to lower the taxability of the estate. After Thompson’s death, his estate (plaintiff) calculated a 40 percent valuation discount to reflect the loss of control and marketability resulting from the exchange of liquid assets for partnership interests. The commissioner of the Internal Revenue Service (defendant) disallowed the discount, determining that Thompson’s estate included the full value of the FLPs’ underlying assets. The estate challenged this determination in the United States Tax Court. The court found the existence of an implied agreement between Thompson and his family that Thompson would retain the economic benefit of the transferred assets for the rest of his life. The court applied Internal Revenue Code (IRC) § 2036 and found the assets includable in Thompson’s estate. The case was appealed to the United States Court of Appeals for the Third Circuit, where there arose the issue of the § 2036 exception for bona fide sales constituting full and adequate consideration.
Rule of Law
Issue
Holding and Reasoning (Scirica, C.J.)
Concurrence (Greenberg, J.)
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