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In Kimbell v. U.S.A., Case No. 03-10529 (May 20, 2004), Ruth
Kimbell transferred most of her estate to three entities, one of which
was a family limited partnership. The Service disputed several transfers
to the estate, claiming they were not a bona fide sale at “arm’s length”
for full and adequate consideration. Furthermore, the Service argued
to disallow the partnership interest valuation discount. The court held
that in this case there was a bona fide sale, insofar as Kimbell relinquished
her control of the assets formerly directly controlled by her in exchange
for a proportionate partnership interest with the capital account of
Kimbell credited with a fair market value for such assets. Furthermore,
as dicta the court rejected the Service’s contention against the discounted
partnership valuation, insofar as such partnership interest was transfer-restricted
and non-participatory and the court recognized that preservation and
continuity of the family business is a valid business purpose. The Kimbell
case provides important guidance on the great care that must be taken
to properly plan and administer the family business and its assets.
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