Kimbell v. United States

Ruth Kimbell owned assets connected to her late husband’s oil and gas business. While estate planning, Kimbell formed multiple entities to hold and manage the assets. Kimbell formed a revocable living trust to which she contributed cash and the oil and gas assets. The trust and Kimbell’s son formed a limited-liability company (LLC), in which the trust took a 50 percent interest. The trust and the LLC formed a limited partnership to which the trust contributed approximately $2.5 million in cash and oil and gas assets in exchange for a 99 percent limited partnership interest. The LLC contributed a modest amount of cash in exchange for the remaining 1 percent interest. Kimbell’s son served as the general partner. The partnership agreement imposed strict transfer and control restrictions on the limited partnership interests, which caused the market value of the interests to be considerably less than their pro rata share of the partnership’s assets. Kimbell died, and her estate (plaintiff) included her 99 percent limited partnership interest in her gross estate at a 49 percent discount, taking into account the transfer and control restrictions. The Internal Revenue Service (IRS) (defendant) determined that the transferred assets themselves should have been included and issued a deficiency. The estate paid the tax and sued for a refund. The district found for the IRS, and the estate appealed.