In a 2-1 decision a panel of the Eighth Circuit ruled in Holman v. Commissioner, (No. 08-3774, filed April 7, 2010), that a taxpayer who formed a limited partnership to hold only shares of Dell, Inc. did not meet the “bona fide business arrangement” test of IRC Section 2704(b)(1). If it had as well as met the tests of subsections (2) and (3), the restrictions on transferability of the limited partnership interests owned by the taxpayer’s children would have applied in determining their value for gift tax purposes. The court saw no need to address subsections (2) and (3) since the partnership agreement failed the first test.
The key to the court’s decision appears to be the taxpayer moving the publicly traded and therefore very liquid Dell shares into a “mere asset container,” a very illiquid limited partnership. In addition, the lack of an articulated business purpose (in essence, a non-tax purpose) by the taxpayer doomed his case.
-Marc Ward
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