Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
The End of the Strangi Saga: Bona Fide Guidance from the Fifth Circuit
In Strangi v. Commissioner, 1 the Fifth Circuit affirmed the Tax Court’s decision to include the full value of Albert Strangi’s minority interest in the Strangi Family Limited Partnership (SFLP) in the decedent’s estate. 2 With this ruling the Fifth Circuit finally put an end to the Strangi saga and gave some much needed clarity to prior interpretations of section 2036. Refusing to rule on the application of section 2036(a)(2), the circuit court avoided the treacherous path set out by the Tax Court, 3 deciding the issue primarily by using and defining section 2036(a)(1) and the bona fide sale exception. 4 By reframing the 2036(a) question primarily in terms of the bona fide sale exception, the Fifth Circuit gave tax practitioners more predictability in advising their clients who are thinking about forming, or who already have formed, a family limited partnership (FLP).
his Note first gives brief background information, and then discusses the Fifth Circuit’s reframing of the section 2036 bona fide sale exception. Finally, through a comparison with Kimbell v. United States, 5 the “substantial nontax purpose” prong of the bona fide sale exception is illustrated from a practical planning perspective.