                        T.C. Memo. 2000-202



                      UNITED STATES TAX COURT



    ESTATE OF MORTON B. HARPER, DECEASED, MICHAEL A. HARPER,
                     EXECUTOR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 19336-98.             Filed June 30, 2000.



     Warren J. Kessler and Joan B. Kessler, for petitioner.

     Donna F. Herbert and Steven M. Roth, for respondent.



                        MEMORANDUM OPINION


     WELLS, Chief Judge:    The instant case is before us on

respondent's motion for partial summary judgment pursuant to Rule

121(a)1.   The issue to be decided is whether, pursuant to section

1
     Unless otherwise indicated, all section references are to
the Internal Revenue Code in effect for the taxable years in

                                                     (continued...)
                                - 2 -

2704(b), restrictions on the right to liquidate certain limited

partnership interests in Harper Financial Co., L.P., should be

disregarded to the extent that such restrictions are more

restrictive than the default provisions of California law.

       Summary judgment may be granted if the pleadings and other

materials demonstrate that no genuine issue exists as to any

material fact and that a decision may be entered as a matter of

law.    See Rule 121(b); Sundstrand Corp. v. Commissioner, 98 T.C.

518, 520 (1992), affd. 17 F.3d 965 (7th Cir. 1994).    Partial

summary judgment may be granted with regard to a single issue if

the conditions for summary judgment are otherwise satisfied,

notwithstanding that all of the issues in the case are not

concluded.    See Rule 121(b); U.S. Bancorp v. Commissioner, 111

T.C. 231, 236 (1998).    The record shows and the parties do not

dispute that there is no genuine issue as to any material fact

with respect to the issue presented by respondent's motion for

partial summary judgment.    Accordingly, we may render judgment on

the issue as a matter of law.    See Rule 121(b).

       For the purpose of ruling on the instant motion only, we

adopt the following facts set forth in the parties' moving

papers.    On December 18, 1990, Morton Harper (decedent) created a

revocable inter vivos trust (trust).    The trust instrument named



1
 (...continued)
issue, and all Rule references are to the Tax Court Rules of
Practice and Procedure.
                               - 3 -

decedent as original trustee and designated his children Michael

A. Harper (Mr. Harper) and Lynn H. Factor (Ms. Factor) as

successor trustees.   The assets held by the trust consisted of

marketable securities and mutual funds, plus a note receivable

for a $450,000 loan which the decedent had made to an unrelated

individual (the portfolio).   Decedent reserved a life estate in

both the income and corpus of the trust and directed that upon

his death the assets should be distributed 40 percent to Mr.

Harper and 60 percent to Ms. Factor.

     On January 1, 1994, decedent, Mr. Harper, and Ms. Factor

entered into an agreement entitled, Agreement for Limited

Partnership for Harper Financial Co., L.P. (partnership

agreement) that created a California limited partnership.    Under

the terms of the partnership agreement, Mr. Harper and Ms. Factor

became general partners with interests in the partnership of 0.4

percent and 0.6 percent respectively, and the trust became the

sole limited partner with an interest of 99 percent in the

partnership.   The trust made an initial capital contribution of

the portfolio to the partnership.

     On July 1, 1994, the parties entered into an amendment to

the partnership agreement that divided the trust's limited

partnership interest into two classes of limited partnership

interests, consisting of: (1) A Class A limited partnership

interest of 39 percent which the trust retained, and (2) a Class
                                 - 4 -

B limited partnership interest of 60 percent which the trust

assigned to Ms. Factor and Mr. Harper.

     Section 20.1 of the partnership agreement provides that:

     The Partnership shall be dissolved upon the earlier of:

          (a) January 1, 2034.

          (b) The retirement, withdrawal, death or insanity
     of any General Partner or any other event or condition,
     other than removal, which, pursuant to the Act and
     unless otherwise provided in this Agreement, results in
     a General Partner ceasing to be a General Partner,
     unless (i) at the time there is at least one remaining
     General Partner to continue the business of the
     Partnership and such remaining General Partner chooses
     to do so, or (ii) all the Partners, as provided in
     Paragraph 12.5(l), above, agree in writing within 60
     days thereof to continue the business of the
     Partnership and, if necessary, to the admission of one
     or more additional General Partners.

          (c) An election to dissolve the Partnership made
     in writing by the General Partners and the Limited
     Partners, all as provided in Paragraph 12.5(f), above.

          (d) The failure to elect, as provided in Paragraph
     12.5(m), above, a successor General Partner within 60
     days from and after removal of the last General
     Partner.

     Section 13.2 of the partnership agreement provides that:

          No General Partner shall have the right to withdraw
     from the Partnership without the consent of the Limited
     Partners.

     On his timely filed Federal Gift Tax return for 1994,

decedent reported a gift of a 0.4-percent general partnership

interest and a 24-percent Class B limited partnership interest in

Harper Financial Co., L.P., to Mr. Harper with values at the date

of the gifts of $6,400 and $230,400, respectively.   Decedent also
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reported a gift of a 0.6-percent general partnership interest and

a 36-percent Class B limited partnership interest in the

partnership to Ms. Factor with values as of the date of the gifts

of $9,600 and $345,600, respectively.

     On February 1, 1995, decedent died.   On the Federal Estate

Tax return filed for decedent's estate on November 2, 1995,

decedent's estate reported a 39-percent Class A limited

partnership interest in the partnership with a value at the date

of death of $410,100.

     We must decide whether, as respondent contends, the

restrictions on the right to liquidate the partnership contained

in the partnership agreement are applicable restrictions within

the meaning of section 2704 and are accordingly to be disregarded

when valuing the shares of the partnership.   Petitioner contends

that the restrictions on the right to liquidate the partnership

contained in the partnership agreement are not more restrictive

than the default restrictions of California law which would apply

in absence of a partnership agreement.   Accordingly, petitioner

argues that such restrictions are not applicable restrictions

within the meaning of section 2704.

     Section 2704(b) provides:

     SEC. 2704(b). Certain Restrictions on Liquidation
     Disregarded.--

          (1) In general.--For purposes of this subtitle, if--
                              - 6 -

               (A) there is a transfer of an interest in a
          corporation or partnership to (or for the benefit of) a
          member of the transferor's family, and

               (B) the transferor and members of the transferor's
          family hold, immediately before the transfer, control
          of the entity,

     any applicable restriction shall be disregarded in
     determining the value of the transferred interest.

          (2) Applicable restriction.--For purposes of this
     subsection, the term "applicable restriction" means any
     restriction--

               (A) which effectively limits the ability of the
          corporation or partnership to liquidate, and

               (B) with respect to which either of the following
          applies:

                    (i) The restriction lapses, in whole or in
               part, after the transfer referred to in paragraph
               (1).

                    (ii) The transferor or any member of the
               transferor's family, either alone or collectively,
               has the right after such transfer to remove, in
               whole or in part, the restriction.

          (3) Exceptions.--The term "applicable restriction"
     shall not include--

              *     *     *     *     *     *     *

               (B) any restriction imposed, or required to be
          imposed, by any Federal or State law.

     Section 25.2704-2(b), Gift Tax Regs., further defines an

applicable restriction as follows:

          (b) Applicable restriction defined. An applicable
     restriction is a limitation on the ability to liquidate the
     entity (in whole or in part) that is more restrictive than
     the limitations that would apply under the State law
     generally applicable to the entity in the absence of the
     restriction. * * *
                               - 7 -

     In our recent opinion in Kerr v. Commissioner, 113 T.C. 449

(1999), we held that provisions in a partnership agreement

substantially similar to those in issue in the instant case were

not more restrictive than the requirements of the applicable

limited partnership law of the State of Texas.      Respondent does

not dispute that the provisions of the limited partnership

agreement in the instant case are substantially similar to those

at issue in Kerr.   Moreover, respondent does not dispute that

there is no substantial difference between California and Texas

law with respect to the liquidation of a limited partnership.

Unable to distinguish the facts or the law at issue in Kerr,

respondent urges this Court to reconsider our opinion in that

case.   Because the facts of the instant case are

indistinguishable from those in issue in Kerr, we need not

reiterate our analysis undertaken in Kerr, which we adopt in this

opinion.

     Accordingly, we hold that the limitations on liquidation

contained in the partnership agreement are not applicable

restrictions within the meaning of section 2704(b) and,

consequently, must be taken into account in valuing the limited

partnership interests in issue in the instant case.     Therefore we

shall deny respondent's motion for partial summary judgment.
                            - 8 -

To reflect the foregoing,


                                         An appropriate order

                                    will be issued.
