Senda v. Commissioner Analyzed

Susan Kalinka (Harriet S. Daggett-Frances Leggio Landry Professor of Law – LSU School of Law) has posted the abstract of her article Senda: When Will a Transfer of Property to an FLP be Considered a Gift on Formation? on SSRN.  The full article may be found in Taxes – The Tax Magazine, May 2006, at 16.
 

Here is the abstract:
   

In Senda v. Commissioner, the United States Court of Appeals for the Eighth Circuit held that transfers of MCI WorldCom stock, worth approximately $3.5 million, to each of two family limited partnerships (FLPs) constituted indirect gifts of the stock to the other partners who were the transferors’ three children. Thus, the taxpayers in Senda were treated as if they had transferred the stock to each of their three children and were subject to gift tax on the full fair market value of the portion of the stock transferred to each child. If the transaction had been treated as a transfer of the stock to the FLP, followed by a transfer of partnership interests to each of the children, the amount of the gift tax liability should have been significantly lower. In that case, the Sendas could have claimed discounts for lack-of-marketability and minority-status factors in determining the value of the partnership interests transferred to the children. This column discusses Senda and offers suggestions for avoiding the gift-on-formation problem.