Sec. 1.704-1(e)(2)(i), Income Tax Regs. See, e.g., Krause v. Commissioner, 497 F.2d 1109 (6th Cir. 1974), affg. 57 T.C. 890(1972); Payton v. United States, supra; United States v. Ramos, supra; Acuff v. Commissioner, 35 T.C. 162 (1960), affd. per curiam 296 F.2d 725 (6th Cir. 1961). Courts have often noted that family partnerships, such as that formed by petitioner's trusts, must be subject to “close scrutiny” of the controls retained by the grantors since the family relationship “so readily lends itself to paper arrangements having little or no relationship to reality.”
I view the majority opinion as a strained approach to the problem and, therefore, reason for an alternative which is less dangerous, supported completely by the regulations and in harmony with the congressional intent of section 704. It would seem to me that the majority should examine the facts in light of the regulations promulgated under section 704(e) as the Court did in Krause v. Commissioner, 57 T.C. 890 (1972), affd. 497 F.2d 1109 (6th Cir. 1974), cert. denied 419 U.S. 1108 (1975). Arthur Condiotti and his tax adviser Barlow owned all of the issued and outstanding stock of petitioner.
Application of the grantor provisions does not preclude the Commissioner's use of sham trust theories, the reciprocal-trust doctrine, or assignment of income principles. See, e.g., Markosian v. Commissioner, 73 T.C. 1235, 1244-1245 (1980); Krause v. Commissioner, 57 T.C. 890, 901 (1972), aff'd, 497 F.2d 1109 (6th Cir. 1974); Snyder v. Commissioner, T.C. Memo. 2001-255, 82 T.C.M. (CCH) 651, 658 (2001). Respondent has chosen not to pursue those theories in this case, however.
Rev. Rul. 85-13, 1985-7 I.R.B. 28. 12 We noted this result in Krause v. Commissioner, 57 T.C. 890, 903 (1972), affd. 497 F.2d 1109 (6th Cir. 1974). 13 In W & W Fertilizer Corp. v. United States, 527 F.2d 621 (Ct. Cl. 1975), and Swanson v. Commissioner, 518 F.2d 59 (8th Cir. 1975), affg.
Estate of Lindsay v. Commissioner, 2 T.C. 174 (1943) (life estates); Cole's Estate v. Commissioner, 140 F.2d 636 (8th Cir. 1944) (life estates); Estate of Oliver v. Commissioner, 3 T.C.M. 408, 13 P-H Memo. T.C. par. 44,138 (1944) (life estates); Hanauer's Estate v. Commissioner, 149 F.2d 857 (2d Cir. 1945) (life estates and power to amend); Orvis v. Higgins, 180 F.2d 537 (2d Cir. 1950) (life estates); McLain v. Jarecki, 232 F.2d 211 (7th Cir. 1956) (life estates); Moreno's Estate v. Commissioner, 260 F.2d 389 (8th Cir. 1958) (life estates); Estate of Carter v. Commissioner, 31 T.C. 1148 (1959) (life estates); United States v. Estate of Grace, 395 U.S. 316 (1969) (life estates and power to change beneficial interests); Lehman v. Commissioner, 109 F.2d 99 (2d Cir. 1940) (power to withdraw corpus); In re Lueders' Estate, 164 F.2d 128 (3d Cir. 1947) (life estates and power to withdran corpus). Cf. Krause v. Commissioner, 57 T.C. 890 (1972), affd. 497 F.2d 1109 (6th Cir. 1974) (grantor trust provisions applied for income tax purposes where spouses granted to trustees reciprocal powers to accumulate and pay over income and corpus to each other). (3) The fair market value for purposes of the Federal estate tax of decedents' partnership interests in a real estate holding company.
Estate of Lindsay v. Commissioner, 2 T.C. 174 (1943) (life estates); Cole's Estate v. Commissioner, 140 F.2d 636 (8th Cir. 1944) (life estates); Estate of Oliver v. Commissioner, 3 T.C.M. 408, 13 P-H Memo. T.C. par. 44,138 (1944) (life estates); Hanauer's Estate v. Commissioner, 149 F.2d 857 (2d Cir. 1945) (life estates and power to amend); Orvis v. Higgins, 180 F.2d 537 (2d Cir. 1950) (life estates); McLain v. Jarecki, 232 F.2d 211 (7th Cir. 1956) (life estates); Moreno's Estate v. Commissioner, 260 F.2d 389 (8th Cir. 1958) (life estates); Estate of Carter v. Commissioner, 31 T.C. 1148 (1959) (life estates); United States v. Estate of Grace, 395 U.S. 316 (1969) (life estates and power to change beneficial interests); Lehman v. Commissioner, 109 F.2d 99 (2d Cir. 1940) (power to withdraw corpus); In re Lueders' Estate, 164 F.2d 128 (3d Cir. 1947) (life estates and power to withdraw corpus). Cf. Krause v. Commissioner, 57 T.C. 890 (1972), affd. 497 F.2d 1109 (6th Cir. 1974) (grantor trust provisions applied for income tax purposes where spouses granted to trustees reciprocal powers to accumulate and pay over income and corpus to each other). Applying the Grace approach to the present case, it seems clear that powers to use principal and interest for minor grandchildren's needs, deemed by respondent to be exchanged by Bruno and Bertha, were not powers having "economic value" to the decedents.
Under this section we must examine all of the facts and circumstances and determine whether the CR trusts became the true owners of the limited partnership interest. Adolph K. Krause, 57 T.C. 890, 896-897 (1972), affd. 497F.1d 1109 (6th Cir. 1974); Ginsberg v. Commissioner, 501 F.2d 965 (6th Cir. 1974), affg. a Memorandum Opinion of this Court. We believe that much of what we said with respect to the validity of the CR trusts is applicable here.
Harold W. Smith, 56 T.C. 263 (1971); Estate of Cornelia B. Schwartz, 9 T.C. 229 (1947). Also, it should be noted that the Samuel test need not coincide with similar-sounding tests in other areas of the tax law where other considerations may be at work, for example, the test carefully constructed by Congress in sections 671 through 678, the test appearing under the family partnership provisions (see Adolph K. Krause, 57 T.C. 890 (1972), and the legislative history, regulations, and cases cited therein), and the specific tests of section 2036 (see United States v. Byrum, 408 U.S. 125 (1972), petition for rehearing pending; Estate of Pamelia D. Holland, 47 B.T.A. 807 (1942), and Supplemental Opinion, 1 T.C. 564 (1943); Estate of William F. Hofford, 4 T.C. 542 (1945), and Supplemental Opinion, 4 T.C. 790 (1945)). In this case it is plain that the petitioner-‘annuitants' deliberately avoided relinquishing control over the stock and its proceeds.