Section of Taxation Publications
  VOL. 54
NO. 4
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 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.

Economic Substance Doctrine Applied to Determine the Validity of a Family Limited Partnership for Federal Transfer Tax Purposes: Knight v. Commissioner

Ilana Safer


In Knight v. Commissioner, the Tax Court affirmed the taxpayers’ use of a family limited partnership for federal transfer tax purposes. The case involved an estate plan whereby the taxpayers created a family limited partnership, conveyed personal assets to it, and then transferred, as gifts, interests in the partnership to trusts they had established for their children. The Tax Court recognized the partnership form for transfer tax purposes and allowed the taxpayers to reduce the face value of the taxable gifts by a 15% valuation discount for minority interest and lack of marketability.

Part I of this Note describes the facts of the case. Part II details the Tax Court’s decision. Part III analyzes the court’s application of the economic substance doctrine to determine the validity of the partnership form. Part IV considers the implications of the decision on estate planning practice.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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