                       T.C. Memo. 2003-145



                     UNITED STATES TAX COURT



 ESTATE OF ALBERT STRANGI, DECEASED, ROSALIE GULIG, INDEPENDENT
                    EXECUTRIX, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent*



     Docket No. 4102-99.              Filed May 20, 2003.



     Norman A. Lofgren, G. Tomas Rhodus, and Michael C.

Kelsheimer, for petitioner.

     Gerald L. Brantley, Lillian D. Brigman, Janice B. Geier, and

John D. MacEachen, for respondent.




__________________
     *
       This opinion supplements our previously filed opinion in
Estate of Strangi v. Commissioner, 115 T.C. 478 (2000), affd. in
part and revd. and remanded in part 293 F.3d 279 (5th Cir. 2002).
                               - 2 -

      SUPPLEMENTAL MEMORANDUM FINDINGS OF FACT AND OPINION


     COHEN, Judge:   This matter is before the Court on remand

from the Court of Appeals for the Fifth Circuit for further

consideration consistent with its opinion in Estate of Strangi v.

Commissioner, 293 F.3d 279 (5th Cir. 2002) (Strangi II), affg. in

part and revg. and remanding in part 115 T.C. 478 (2000)

(Strangi I).   The issue for decision on remand is whether the

value of property transferred by Albert Strangi (decedent) to the

Strangi Family Limited Partnership (SFLP) and Stranco, Inc.

(Stranco), is includable in his gross estate pursuant to section

2036(a).   Unless otherwise indicated, all section references are

to the Internal Revenue Code in effect as of the date of death,

and all Rule references are to the Tax Court Rules of Practice

and Procedure.

                         FINDINGS OF FACT

     Facts with respect to this case were found in our original

opinion in Strangi I and are incorporated by this reference.     We

summarize for convenience relevant facts from Strangi I and set

forth additional findings for purposes of deciding the issue on

remand.

General Background

     Decedent and his first wife had four children:   Jeanne,

Rosalie, Albert T., and John Strangi (collectively the Strangi

children).   After divorcing his first wife in 1965, decedent
                                   - 3 -

married Irene Delores Seymour (Mrs. Strangi), who had two

daughters, Angela and Lynda Seymour (collectively the Seymour

daughters), from a previous marriage.          In 1985, Rosalie

(hereinafter Mrs. Gulig) married Michael J. Gulig (Mr. Gulig), an

attorney with the law firm of Sheehy, Lovelace and Mayfield,

P.C., in Waco, Texas.   On February 19, 1987, decedent and

Mrs. Strangi executed wills that named the Strangi children and

the Seymour daughters as residual beneficiaries in the event that

either spouse predeceased the other.

     During 1987 and 1988, Mrs. Strangi suffered a series of

serious medical problems.       In 1988, decedent and Mrs. Strangi

decided to move from their then home in Fort Walton Beach,

Florida, to Waco, Texas.    To facilitate this move, decedent on

July 19, 1988, executed a power of attorney naming Mr. Gulig as

his attorney in fact and thereby authorizing Mr. Gulig, in

decedent’s “name, place and stead”:

          To exercise, do, or perform any act, right, power,
     duty, or obligation whatsoever that I now have or may
     acquire * * * relating to any person, item, thing,
     transaction, business property, real or personal,
     tangible or intangible, or matter whatsoever;

               *    *       *      *       *    *    *

          To lease, purchase, exchange and acquire, and to
     bargain, contract, and agree for the lease, purchase,
     exchange, and acquisition of, and to take, receive and
     possess any real or personal property whatsoever,
     tangible or intangible, or interest therein, on such
     terms and conditions, and under such covenants as the
     attorney in fact shall deem proper;
                                - 4 -

          To improve, repair, maintain, manage, insure,
     rent, lease, sell, release, convey, subject to lien,
     mortgage, hypothecate, and in any way or manner deal
     with all or any part of any real or personal property
     whatsoever, intangible, or any interest therein, which
     I now own or may hereafter acquire, for me and in my
     name, and under such terms and conditions, and under
     such covenants as said attorney shall deem proper;

           To engage in and transact any and all lawful
     business of whatever nature or kind for me and in my
     name;

          To sign, endorse, execute, acknowledge, deliver,
     receive and possess such * * * [contracts, agreements,
     etc.] and such other instruments in writing of whatever
     kind and nature as may be necessary or proper in the
     exercise of the rights and powers herein granted.

Thus, among other things, Mr. Gulig was authorized to close the

purchase of a residence in Waco.    After the move to Waco, Sylvia

Stone (Ms. Stone) was hired as decedent’s housekeeper and also

provided assistance with the care of Mrs. Strangi.

     On July 31, 1990, decedent executed a new will, naming the

Strangi children as the sole residual beneficiaries if

Mrs. Strangi predeceased him.   This will also designated

Mrs. Gulig and Ameritrust Texas, N.A. (Ameritrust), as

coexecutors of decedent’s estate.   Mrs. Strangi died on

December 27, 1990.

     During 1993, decedent had surgery to remove a cancerous mass

from his back; was diagnosed with supranuclear palsy (a brain

disorder that would gradually reduce his ability to speak, walk,

and swallow); and had prostate surgery.   Mr. Gulig thereafter

took over decedent’s affairs pursuant to the 1988 power of
                                - 5 -

attorney.    Mr. Gulig also developed a close personal relationship

with decedent after the death of Mrs. Strangi.    Every morning,

Mr. Gulig would visit decedent to have coffee and read the

newspaper.

SFLP and Stranco

     On August 11, 1994, Mr. Gulig attended a seminar provided by

Fortress Financial Group, Inc. (Fortress), on the use of family

limited partnerships as a tool for (1) asset preservation,

(2) estate planning, (3) income tax planning, and (4) charitable

giving.    The following day, on August 12, 1994, Mr. Gulig, as

decedent’s attorney in fact, formed SFLP, a Texas limited

partnership, and its corporate general partner, Stranco, a Texas

corporation, and filed with the State of Texas the respective

certificate of limited partnership and articles of incorporation.

In August 1994 Mr. Gulig believed decedent had about 12 to 18

months to live.    Mrs. Gulig expected decedent to survive about

2 years.

     An Agreement of Limited Partnership of Strangi Family

Limited Partnership (SFLP agreement) was prepared by Mr. Gulig

using documents licensed from Fortress and sets forth the

governing provisions for the entity.    Stranco is designated

therein as the managing general partner, the authority of which

is broadly described as follows:

     Except as otherwise provided in this Agreement, the
     Managing General Partner of the Partnership, shall have
                                - 6 -

     the sole, exclusive and absolute right and authority to
     act for and on behalf of the Partnership and all of the
     Partners in connection with all aspects of the business
     of the Partnership.

More specifically, the SFLP agreement enumerates various rights,

powers, and authorities of the managing general partner,

including without limitation “to acquire, hold, lease, encumber,

pledge, option, sell, exchange, transfer, dispose or otherwise

deal with real or personal property (or rights or interests

therein) of any nature whatsoever as may be necessary or

advisable for the operation of the Partnership”; “to borrow or

lend money for Partnership purposes”; and “to determine the use

of the revenues of the Partnership for Partnership purposes”.

The SFLP agreement obligates the managing general partner to use

its good faith efforts to manage partnership affairs in a prudent

and businesslike manner and to act at all times in the best

interests of the partnership.   According to the SFLP agreement,

limited partners are without “any authority or right to take part

in the management of the business or transact any business” for

the entity.

     As regards distributions, the SFLP agreement provides that

income from operations and capital transactions, after deduction

for certain listed expenses:

     shall be distributed at such times and in such amounts
     as the Managing General Partner, in its sole
     discretion, shall determine, taking into account the
     reasonable business needs of the Partnership (including
     plan for expansion of the Partnership’s business). The
                                 - 7 -

     Managing General Partner’s determination regarding
     whether or not to make distributions and the amount of
     distributions to be made shall be final and binding on
     all Partners. Such distributions shall be made to each
     Partner in accordance with such Partner’s Interest in
     the Partnership.

Likewise, “Assets of the Partnership may be distributed in kind

in the sole and absolute discretion of the Managing General

Partner.”

     Pursuant to the SFLP agreement, the partnership would be

dissolved and terminated upon:    (1) A unanimous vote of the

limited partners and unanimous consent of the general partners;

(2) a decision of the managing general partner after the

disposition of substantially all partnership assets; (3) an entry

of judicial dissolution; (4) the death, insolvency, bankruptcy,

removal, or withdrawal of any general partner, unless the limited

partners within 90 days unanimously elect a new general partner

to continue the business; (5) the involuntary transfer of a

general partnership interest in the event there is only one

general partner, unless the limited partners within 90 days vote

unanimously to continue the partnership; or (6) December 31,

2014.

     Upon dissolution and termination, SFLP was to be liquidated.

The managing general partner was designated as liquidator and

instructed to dispose of partnership assets first in payment of

third-party debts, then in repayment of loans from partners, and
                               - 8 -

finally in repayment to partners of positive capital account

balances.

     By a series of transfer documents, Mr. Gulig assigned to

SFLP property of decedent with a fair market value of $9,876,929,

constituting approximately 98 percent of decedent’s wealth, in

exchange for a 99-percent limited partnership interest.     The

contributed property included decedent’s interest in specified

real estate (including the residence occupied by decedent),

securities, accrued interest and dividends, insurance policies,

an annuity, receivables, and partnership interests.   About

75 percent of the contributed value was attributable to cash and

securities.   The majority of the asset transfer documents were

dated August 12, 1994, while change of ownership forms for the

life insurance policies were executed on August 14 and 15, 1994.

Letters dated August 15, 1994, were also sent to the brokers

holding decedent’s securities accounts, to those administering

the contributed partnership interests, and to the borrowers on

notes payable to decedent advising them regarding transfer of the

underlying assets to SFLP.   All of the contributed property was

reflected in decedent’s capital account.   Brokerage and bank

accounts were opened in the name of the partnership during the

period from August through October.

     Mr. Gulig invited the Strangi children to participate in

SFLP through an interest in Stranco.   Decedent purchased
                                 - 9 -

47 percent of Stranco for $49,350, and Mrs. Gulig purchased the

remaining 53 percent for $55,650 on behalf of herself and her

three siblings (with each thereby acquiring a 13.25-percent

interest).   The moneys were deposited into a bank account opened

in August 1994 in Stranco’s name.    Stranco contributed a portion

of these funds to SFLP in exchange for a 1-percent general

partnership interest.

     Stranco’s articles of incorporation named decedent and the

Strangi children as the initial five directors.   On August 17,

1994, the Strangi children and Mr. Gulig met to execute the

Stranco bylaws, a shareholders agreement, and a “Consent of

Directors Authorizing Corporate Action in Lieu of Organizational

Meeting” effective as of August 12, 1994.   They also signed a

“Unanimous Consent of Directors in Lieu of Special Meeting” that

authorized the corporate president to execute a management

agreement employing Mr. Gulig.

     The Stranco bylaws set forth provisions governing corporate

formalities.   As pertains to shareholders, the bylaws state that

a majority of the outstanding shares shall constitute a quorum at

a meeting.   Shareholders may also take informal action by means

of a consent in writing signed by all shareholders.

     Concerning directors, the bylaws specify that there shall be

five directors, one of whom shall be elected president.   At a

meeting of the board, a majority of the directors then serving
                              - 10 -

shall constitute a quorum, and the act of a majority of the

directors present at a meeting with a quorum shall be the act of

the board.   Directors may also take informal action by a written

consent signed by all directors.   The president shall be the

principal executive officer of the corporation and, subject to

the control of the board, shall generally supervise and control

all of the business and affairs of the corporation.    Among the

particular powers or duties placed under the board is the payment

of dividends, as follows:   “The Board of Directors may declare,

and the corporation may pay, dividends on its outstanding shares

in any manner and upon any terms and conditions not restricted by

the Articles of Incorporation or prohibited by law.”

     The management agreement executed by Stranco and Mr. Gulig

described his duties as follows:

          Scope of Employment. Employee is hired to manage
     the day-to-day business of Employer. Additionally, the
     Employee shall manage the day-to-day business of the
     Strangi Family Limited Partnership, a Texas limited
     partnership (the “Partnership”) in which Employer
     serves as the sole general partner and the managing
     partner of the Partnership. During the term of this
     Agreement, the Employee shall devote such portion of
     his time, attention, and energies to the businesses of
     the Employer and the Partnership and will diligently
     and to the best of his ability perform all duties
     incident to his employment hereunder. The duties of
     Employee shall include, but not be limited to,
     management of the Partnership’s rental properties, cash
     and investment management, and the preparation and
     filing of all required governmental reports including
     tax returns.
                              - 11 -

      In the shareholders agreement, decedent and the Strangi

children agreed that at each annual meeting they would vote to

reelect themselves (or a nominee) as the five directors.     They

further agreed that, if a vacancy occurred on the board by reason

of the death, disability, resignation, retirement, or removal of

a director so elected, they would cause the bylaws to be amended

so as to reduce by one the number of directors.

      Thereafter, each of the four Strangi children gave a

.25-percent interest in Stranco to McLennan Community College

Foundation (MCC Foundation), and the charity became a 1-percent

shareholder in the corporation.   MCC Foundation accepted the gift

by execution on August 18, 1994, of an agreement to be bound by

the terms of the preexisting shareholders agreement.

      Decedent died of cancer on October 14, 1994, at the age of

81.   Following decedent’s death, Texas Commerce Bank, N.A. (TCB),

successor in interest to Ameritrust, was asked to decline to

serve as coexecutor of his estate.     TCB subsequently did so, and

decedent’s will was admitted to probate on April 12, 1995, with

Mrs. Gulig appointed as the sole executor.

      After its formation, various monetary outlays were made from

SFLP.   From September 1993 until his death, decedent required

24-hour home health care that was provided by Olsten Healthcare

(Olsten) and supplemented by Ms. Stone.    During this time and

while assisting decedent, Ms. Stone injured her back.    The
                               - 12 -

resultant back surgery was paid for by SFLP.      SFLP also paid

nearly $40,000 in 1994 for funeral expenses, estate

administration expenses, and related debts of decedent, including

a $19,810.28 check to Olsten for nursing services.      SFLP then

paid more than $65,000 in 1995 and 1996 for estate expenses and a

specific bequest to decedent’s sister.      In July 1995, SFLP

distributed $3,187,800 to decedent’s estate for Federal estate

and State inheritance taxes.   When such disbursements were made

to or for the benefit of decedent or his estate, Stranco received

corresponding and proportionate sums either in cash or in the

form of adjusting journal entries.      For accounting purposes,

certain amounts expended by SFLP were initially recorded on its

books as advances to, and accounts receivable from, partners.

SFLP also accrued rent on the residence occupied by decedent and

reported the rental income on its 1994 income tax return.        The

accrued amount was paid in January 1997.      Mr. Gulig made all

entries into the books and records of SFLP and Stranco and

prepared all income tax returns for the entities.

Estate Tax Proceedings

     On January 17, 1996, a Form 706, United States Estate (and

Generation-Skipping Transfer) Tax Return, filed on behalf of

decedent’s estate was received by the Internal Revenue Service.

The value reported on the Form 706 for the gross estate was

$6,823,582, which included $6,560,730 for decedent’s interest in
                              - 13 -

SFLP and $24,551 for his stock in Stranco.   The total value of

the property held by SFLP as of the date of death was

$11,100,922, to which discounts were applied in calculating the

reported fair market value.   The Form 706 also reflected other

assets of $238,301 (including household and personal items,

vehicles, securities, certain receivables, and bank account

balances totaling $762) and claimed deductions of $43,280 for

debts of decedent (including $5,161 for rents to SFLP) and

$107,108 for expenses.

     In a statutory notice dated December 1, 1998, respondent

determined a deficiency in Federal estate tax of $2,545,826 and

an alternative deficiency in Federal gift tax of $1,629,947.    The

estate tax deficiency resulted in large part from respondent’s

conclusion that decedent’s interest in SFLP should be increased

by $4,386,613 (to $10,947,343) and his interest in Stranco should

be increased by $29,009 (to $53,560).

     The proceedings in Strangi I were initiated in response to

the foregoing notice of deficiency.    Prior to trial, respondent

attempted by motion to raise section 2036 as an issue.    Strangi I

at 486.   That motion was denied as untimely.   Id.   With respect

to the remaining issues, we held in Strangi I at 486-493:

(1) The partnership was valid under State law and would be

recognized for estate tax purposes; (2) section 2703 did not

apply to the partnership agreement; (3) the transfer of assets to
                                 - 14 -

SFLP was not a taxable gift; and (4) decedent’s interests in SFLP

and Stranco should be valued using the discounts applied by

respondent’s expert.

      After entry of decision, respondent appealed to the Court of

Appeals for the Fifth Circuit.      The appellate court ruled as

follows:

           We REVERSE the Tax Court’s denial of leave to
      amend and REMAND with instructions that the court
      either (1) set forth its reasons for adhering to its
      denial of the Commissioner’s motion for leave to amend,
      bearing in mind the mandate of the Federal Rule of
      Civil Procedure 15(a), or (2) reverse its denial of the
      Commissioner’s motion, permit the amendment, and
      consider the Commissioner’s claim under sec. 2036. We
      AFFIRM all other conclusions made by the tax court.
      [Strangi II at 282.]

Over petitioner’s objection, leave was granted for respondent’s

amendment to answer and a second amendment to answer raising

section 2036.

                                 OPINION

I.   Inclusion in the Gross Estate--Section 2036

      A.     General Rules

      As a general rule, the Internal Revenue Code imposes a

Federal tax “on the transfer of the taxable estate of every

decedent who is a citizen or resident of the United States.”

Sec. 2001(a).      The taxable estate, in turn, is defined as “the

value of the gross estate”, less applicable deductions.      Sec.

2051.      Section 2031(a) specifies that the gross estate comprises
                              - 15 -

“all property, real or personal, tangible or intangible, wherever

situated”, to the extent provided in sections 2033 through 2045.

     Section 2033 broadly states that “The value of the gross

estate shall include the value of all property to the extent of

the interest therein of the decedent at the time of his death.”

Sections 2034 through 2045 then explicitly mandate inclusion of

several more narrowly defined classes of assets.   Among these

specific sections is section 2036, which reads in pertinent part

as follows:

     SEC. 2036.   TRANSFERS WITH RETAINED LIFE ESTATE.

          (a) General Rule.--The value of the gross estate
     shall include the value of all property to the extent
     of any interest therein of which the decedent has at
     any time made a transfer (except in case of a bona fide
     sale for an adequate and full consideration in money or
     money’s worth), by trust or otherwise, under which he
     has retained for his life or for any period not
     ascertainable without reference to his death or for any
     period which does not in fact end before his death--

               (1) the possession or enjoyment of, or the
          right to the income from, the property, or

               (2) the right, either alone or in conjunction
          with any person, to designate the persons who
          shall possess or enjoy the property or the income
          therefrom.

Regulations further explain that “An interest or right is treated

as having been retained or reserved if at the time of the

transfer there was an understanding, express, or implied, that

the interest or right would later be conferred.”   Sec. 20.2036-

1(a), Estate Tax Regs.
                              - 16 -

     Given the language used in the above-quoted provisions, it

has long been recognized that “The general purpose of this

section is ‘to include in a decedent’s gross estate transfers

that are essentially testamentary’ in nature.”   Ray v. United

States, 762 F.2d 1361, 1362 (9th Cir. 1985) (quoting United

States v. Estate of Grace, 395 U.S. 316, 320 (1969)).

Accordingly, courts have emphasized that the statute “describes a

broad scheme of inclusion in the gross estate, not limited by the

form of the transaction, but concerned with all inter vivos

transfers where outright disposition of the property is delayed

until the transferor’s death.”   Guynn v. United States, 437 F.2d

1148, 1150 (4th Cir. 1971).

     As used in section 2036(a)(1), the term “enjoyment” has been

described as “synonymous with substantial present economic

benefit.”   Estate of McNichol v. Commissioner, 265 F.2d 667, 671

(3d Cir. 1959), affg. 29 T.C. 1179 (1958); see also Estate of

Reichardt v. Commissioner, 114 T.C. 144, 151 (2000).     Regulations

additionally provide that use, possession, right to income, or

other enjoyment of transferred property is considered as having

been retained or reserved “to the extent that the use,

possession, right to the income, or other enjoyment is to be

applied toward the discharge of a legal obligation of the

decedent, or otherwise for his pecuniary benefit.”   Sec. 20.2036-

1(b)(2), Estate Tax Regs.   Moreover, possession or enjoyment of
                              - 17 -

transferred property is retained for purposes of section

2036(a)(1) where there is an express or implied understanding to

that effect among the parties at the time of the transfer, even

if the retained interest is not legally enforceable.      Estate of

Maxwell v. Commissioner, 3 F.3d 591, 593 (2d Cir. 1993), affg. 98

T.C. 594 (1992); Guynn v. United States, supra at 1150; Estate of

Reichardt v. Commissioner, supra at 151; Estate of Rapelje v.

Commissioner, 73 T.C. 82, 86 (1979).   The existence or

nonexistence of such an understanding is determined from all of

the facts and circumstances surrounding both the transfer itself

and the subsequent use of the property.   Estate of Reichardt v.

Commissioner, supra at 151; Estate of Rapelje v. Commissioner,

supra at 86.

     As used in section 2036(a)(2), the term “right” has been

construed to connote “an ascertainable and legally enforceable

power”.   United States v. Byrum, 408 U.S. 125, 136 (1972).

Nonetheless, regulations clarify:

     With respect to such a power, it is immaterial
     (i) whether the power was exercisable alone or only in
     conjunction with another person or persons, whether or
     not having an adverse interest; (ii) in what capacity
     the power was exercisable by the decedent or by another
     person or persons in conjunction with the decedent; and
     (iii) whether the exercise of the power was subject to
     a contingency beyond the decedent’s control which did
     not occur before his death (e.g., the death of another
     person during the decedent’s lifetime). The phrase,
     however, does not include a power over the transferred
     property itself which does not affect the enjoyment of
     the income received or earned during the decedent’s
     life. * * * Nor does the phrase apply to a power held
                              - 18 -

     solely by a person other than the decedent. But, for
     example, if the decedent reserved the unrestricted
     power to remove or discharge a trustee at any time and
     appoint himself as trustee, the decedent is considered
     as having the powers of the trustee. [Sec. 20.2036-
     1(b)(3), Estate Tax Regs.]

Additionally, retention of a right to exercise managerial power

over transferred assets or investments does not of itself result

in inclusion under section 2036(a)(2).     United States v. Byrum,

supra at 132-134.

     An exception to the treatment mandated by section 2036(a)

exists where the facts establish “a bona fide sale for an

adequate and full consideration in money or money’s worth”.

     B.   Burden of Proof

     Typically, the burden of disproving the existence of an

agreement regarding a retained interest has rested on the estate,

and this burden has often been characterized as particularly

onerous in intrafamily situations.     Estate of Maxwell v.

Commissioner, supra at 594; Estate of Reichardt v. Commissioner,

supra at 151-152; Estate of Rapelje v. Commissioner, supra at 86.

In this case, however, the section 2036 issues are new matters

within the meaning of Rule 142(a).     Thus, the burden of proof is

on respondent.

     C.   Existence of a Retained Interest

     Respondent contends that the value of the property

transferred to SFLP and Stranco is includable in decedent’s gross

estate under either section 2036(a)(1) or section 2036(a)(2).
                              - 19 -

Underlying both of these arguments is the particular structure of

the SFLP/Stranco arrangement, as set forth in the relevant

governing documents.

     The SFLP agreement provides that distributions of proceeds

and assets from the entity shall be made in the sole discretion

of the managing general partner.   The SFLP agreement also

designates Stranco as the managing general partner.    Stranco, in

turn, executed the management agreement employing Mr. Gulig to

manage the day-to-day business of SFLP, as well as of Stranco

itself.   Yet Mr. Gulig was already decedent’s attorney in fact

pursuant to the 1988 general power of attorney.    Under this

instrument, Mr. Gulig was granted full and durable authority to

act for decedent in his “name, place and stead”.    Mr. Gulig set

up the SFLP/Stranco arrangement to facilitate decedent’s estate

planning goals and capitalized the partnership primarily with

decedent’s property.

     When distilled to their most essential terms, the governing

documents gave Mr. Gulig authority to specify distributions from

SFLP, which is entirely consistent with his authority under the

1988 power of attorney.   Although the estate protests that

Mr. Gulig’s authority under the management agreement was limited

to managing “the day-to-day business” of the partnership and did

not extend to making distributions or loans, the pertinent

instruments provide no basis for concluding that making
                                   - 20 -

distributions would be outside the day-to-day business of a

partnership capitalized nearly exclusively with investment

assets.   As a practical matter, actual disbursement of funds

occurred when checks were issued by Mr. and Mrs. Gulig in their

various related capacities, pursuant to rights granted to them by

decedent, acting through Mr. Gulig.

     Hence, to summarize, the SFLP agreement named Stranco

managing general partner with the sole discretion to determine

distributions.    The Stranco shareholders, including decedent

(through Mr. Gulig), then acted together to delegate such

authority to Mr. Gulig under the management agreement.

Decedent’s attorney in fact thereby stood in a position to make

distribution decisions.    Mrs. Gulig effectuated these decisions

by signing checks to the recipients so designated.

     1.   Section 2036(a)(1)

     Section 2036(a)(1) provides for inclusion of transferred

property with respect to which the decedent retained, by express

or implied agreement, possession, enjoyment, or the right to

income.   Enjoyment in this context is equated with present

economic benefit.

           a.    Right to income

     As a threshold matter, we observe that our analysis above of

the express documents suggests inclusion of the contributed

property under section 2036(a)(1) based on the “right to the
                                 - 21 -

income” criterion, without need further to probe for an implied

agreement regarding other benefits such as possession or

enjoyment.    The governing documents contain no restrictions that

would preclude decedent himself, acting through Mr. Gulig, from

being designated as a recipient of income from SFLP and Stranco.

Such scenario is consistent with the reach of the right to income

phrase as we described it in Estate of Pardee v. Commissioner, 49

T.C. 140, 148 (1967):

     section 2036(a)(1) refers not only to the possession or
     enjoyment of property but also to “right to the income”
     from property. The section does not require that the
     transferor pull the “string” or even intend to pull the
     string on the transferred property; it only requires
     that the string exist. See McNichol’s Estate v.
     Commissioner, 265 F.2d 667, 671 (C.A. 3, 1959),
     affirming 29 T.C. 1179 (1958) * * *

             b.   Possession or enjoyment

     The facts of this case support the finding of an implied

agreement for retained possession or enjoyment.   We have

previously considered implicit retention of these benefits under

section 2036(a)(1) in situations involving family limited

partnerships in Estate of Reichardt v. Commissioner, 114 T.C. 144

(2000); Estate of Thompson v. Commissioner, T.C. Memo. 2002-246;

Estate of Harper v. Commissioner, T.C. Memo. 2002-121; and Estate

of Schauerhamer v. Commissioner, T.C. Memo. 1997-242.    Although

the instant case is based on limited post-transfer history, due

in part to decedent’s death only 2 months after creation of the

partnership, we conclude that the reasoning underlying those
                              - 22 -

opinions directs a like result here.    Fundamentally, the

preponderance of the evidence shows that decedent as a practical

matter retained the same relationship to his assets that he had

before formation of SFLP and Stranco.

     Circumstances that have been found probative of an

implicitly retained interest under section 2036(a)(1) include

transfer of the majority of the decedent’s assets, continued

occupation of transferred property, commingling of personal and

entity assets, disproportionate distributions, use of entity

funds for personal expenses, and testamentary characteristics of

the arrangement.   Guynn v. United States, 437 F.2d at 1150;

Estate of Reichardt v. Commissioner, supra at 152-154; Estate of

Thompson v. Commissioner, supra; Estate of Harper v.

Commissioner, supra; Estate of Trotter v. Commissioner, T.C.

Memo. 2001-250; Estate of Schauerhamer v. Commissioner, supra.

     At the outset, we acknowledge that, in contrast to certain

of the prior cases, the participants involved in the SFLP/Stranco

arrangement generally proceeded such that “the proverbial ‘i’s

were dotted’ and ‘t’s were crossed’.”    Strangi I at 486.   Steps

were taken to abide by the formal terms of the structure created.

Such measures may give SFLP and Stranco sufficient substance to

be recognized as legal entities in the context of valuation,

which requires assumption of a hypothetical buyer and seller.

They do not preclude implicit retention by decedent of economic
                               - 23 -

benefit from the transferred property for purposes of section

2036(a)(1).

     First, we cannot lose sight of the fact that decedent

contributed approximately 98 percent of his wealth, including his

residence, to the SFLP/Stranco arrangement.    Respondent alleges

that the transfer left decedent with inadequate assets and cash

flow to meet his living expenses, to which the estate takes

objection.    The estate goes to great lengths to counter

respondent’s assertion, claiming that decedent at his death

possessed liquefiable assets of at least $172,000 and received on

a monthly basis a pension of $1,438.18 and Social Security of

$1,559.   The estate also stresses that respondent has not

established the amount of decedent’s living expenses and

maintains that, even if the $33,323.22 in checks paid from

decedent’s account in August and September were used as an

estimate, the purported liquefiable assets would have covered

decedent’s needs for his concededly short life expectancy of 12

to 24 months.   However, the relative dearth of liquefied

(decedent’s Form 706 showed two bank accounts with funds totaling

$762), as opposed to “liquefiable”, assets persuades us that

decedent and his children and Mr. Gulig all expected that SFLP

and Stranco would be a primary source of decedent’s liquidity.

It is unreasonable to expect that decedent would be forced to

rely on sale of assets to meet his basic costs of living.
                              - 24 -

     A second feature highly probative under section 2036(a)(1)

is decedent’s continued physical possession of his residence

after its transfer to SFLP.   The estate maintains that any

otherwise negative implications of this circumstance are

neutralized by the fact that SFLP “charged Mr. Strangi rent” on

occupancy of the home and reported rental income on its 1994 tax

return.   Decedent likewise reported a rent obligation on his

estate tax return.   For accounting purposes, the accrued rent was

recorded by SFLP on its books.   Yet the accrued amount was not

paid until January 1997.   A residential lessor dealing at arm’s

length would hardly be content merely to accrue a rental

obligation for eventual payment more than 2 years later.   As we

have remarked, accounting entries alone are of small moment in

belying the existence of an agreement for retained possession and

enjoyment.   Estate of Reichardt v. Commissioner, 114 T.C. at 154-

155; Estate of Harper v. Commissioner, T.C. Memo. 2002-121.

     Concerning factors that relate to use of entity funds, the

estate emphasizes that each disbursement for decedent or his

estate was accompanied by a pro rata allotment to Stranco.

Where, as here, the only interest in the partnership other than

that held by the decedent is de minimis, a pro rata payment is

hardly more than a token in nature.    In these circumstances, pro

rata disbursements are insufficient to negate the probability

that the decedent retained economic enjoyment of his or her
                               - 25 -

assets.    After all, distributing 1 percent to Stranco would not

in any substantial way operate to curb decedent’s ability to

benefit from SFLP property.    Accordingly, we direct our attention

to the purpose, as opposed to the mechanics, of partnership

distributions and expenditures.

     The record reveals several instances where SFLP expended

funds in response to a need of decedent or his estate.    SFLP paid

for Ms. Stone’s back surgery to alleviate an injury she sustained

in caring for decedent prior to the formation of SFLP.    In 1994,

SFLP expended nearly $40,000 for funeral expenses, estate

administration, and related debts, including a $19,810.28 check

to Olsten to pay for nursing services rendered to decedent before

his death.   These sums were followed in 1995 and 1996 by further

payment of over $65,000 for estate expenses and a specific

bequest.   SFLP also disbursed approximately $3 million directed

toward decedent’s estate and inheritance taxes.

     The estate seeks to justify these payments primarily by

emphasizing that they were accounted for on SFLP’s books as

advances to partners and later closed as distributions, with pro

rata amounts either advanced or distributed to Stranco.   The

evidence also indicates that the $65,000-plus amount was repaid

in January 1997.   The estate further explains that certain of

these payments from SFLP were necessitated by the delay in
                               - 26 -

probate of decedent’s estate engendered by the process of getting

TCB to decline executorship.

     To the extent that the estate’s arguments focus on

accounting manipulations, they are unavailing.    As demonstrated

in Estate of Reichardt v. Commissioner, supra at 154-155, and

Estate of Harper v. Commissioner, supra, accounting adjustments

do not preclude a conclusion that those involved understood that

the decedent’s assets would be made available as needs

materialized.    Belated repayment of certain amounts likewise does

not refute the inference of an implicit agreement for retained

enjoyment that arises from the demonstrated and contemporaneous

availability of large sums.    Furthermore, to the extent that the

estate’s explanations focus on a delay in probate, they lack

specificity.    The more salient feature would appear to be the

insufficiency of the assets not contributed to SFLP and Stranco

to cover the significant expenses reasonably to be expected to

ensue in connection with decedent’s poor health and death.    That,

in turn, speaks to retained enjoyment.

     Regarding testamentary characteristics, the SFLP/Stranco

arrangement also bears greater resemblance to one man’s estate

plan than to any sort of arm’s-length, joint enterprise.    As in

Estate of Harper v. Commissioner, supra, “the largely unilateral

nature of the formation, the extent and type of the assets

contributed thereto, and decedent’s personal situation are
                               - 27 -

indicative.”   Mr. Gulig established the entities using Fortress

documents with little, if any, input from other family members.

The contributed property included the majority of decedent’s

assets in general and his investments, a prime concern of estate

planning, in particular.    Decedent was advanced in age and

suffering from serious health conditions.    Furthermore, as

discussed in Strangi I at 485-486, the purpose of the partnership

arrangement was not to provide a joint investment vehicle for the

management of decedent’s assets, but was consistent with

testamentary intent.

     Moreover, the crucial characteristic is that virtually

nothing beyond formal title changed in decedent’s relationship to

his assets.    Mr. Gulig managed decedent’s affairs both before and

after the transfer.    Decedent’s children did not obtain a

meaningful economic stake in the property during decedent’s life.

They raised no objections or concerns when large sums were

advanced for expenditures of decedent or his estate, thus

implying an understanding that decedent’s access thereto would

not be restricted.

     In face of the foregoing realities, the estate argues that

whatever possession or enjoyment of the contributed property

decedent may have experienced was neither “retained” by means of

a contemporaneous agreement nor “with respect to the transferred

property”.    As regards the first point, the estate contends that
                                - 28 -

respondent has offered no evidence to prove a contemporaneous

agreement requiring the distributions made, as opposed to an

independent subsequent decision by Stranco to make the same

outlay.    According to the estate:

       Even if decisions to make distributions were made based
       on “sympathy for poor old dad,” i.e., “Oops,
       Mr. Strangi imprudently put too much money into SFLP
       and we need to give some back” that would not meet the
       criteria set by judicial precedent for determining the
       existence of a retained expectation of possession of
       [sic] enjoyment: which is that there must have been an
       implied agreement that was contemporaneous with the
       transfer of the property at issue, not a subsequent
       agreement or act. * * * [Fn. ref. omitted.]

We are persuaded that the evidence and circumstances detailed

above render such a contemporaneous agreement more likely than

not.

       The second point mentioned stems from the estate’s view that

pro rata distributions were made not with respect to the

transferred property, in which decedent possessed no legal

interest under the Texas Revised Limited Partnership Act (TRLPA),

Tex. Rev. Civ. Stat. Ann. art. 6132a-1, sec. 7.01 (Vernon Supp.

2003), but with respect to his partnership interest.     Yet this

argument relies on paper title to the exclusion of the

practicalities that are the focus of section 2036(a)(1).      The

property contributed by decedent was the source of the payments

made.     Furthermore, the record suggests that the impetus

underlying a number of significant SFLP disbursements was needs
                                - 29 -

of decedent or his estate, rather than exigencies pertaining to

Stranco or the partnership itself.

     Hence, the preponderance of the evidence establishes that

decedent retained possession of, enjoyment of, or the right to

income from the property transferred within the meaning of

section 2036(a)(1).

           2.    Section 2036(a)(2)

     Although we have held supra that section 2036(a)(1) requires

the estate to include the value of the transferred assets in the

gross estate for Federal estate tax purposes, the parties have

argued extensively over the issue of whether section 2036(a)(2)

applies.   Consequently, we address the applicability of section

2036(a)(2) to the instant case.       As stated above, section

2036(a)(2) mandates inclusion in the gross estate of transferred

property with respect to which the decedent retained the right to

designate the persons who shall possess or enjoy the property or

its income.     This provision was interpreted by the Supreme Court

in United States v. Byrum, 408 U.S. 125 (1972), and both parties

devote a significant portion of their respective arguments to the

implications of that decision.    We address these arguments as an

alternative to our conclusions concerning section 2036(a)(1) and

with particular consideration of the facts of this case.

     In United States v. Byrum, supra at 126, the decedent,

Mr. Byrum, created an irrevocable trust for the benefit of his
                                 - 30 -

children.    He funded the trust with shares of three closely held

corporations but retained the right to vote the shares and to

veto any sale or transfer of the stock.      Id. at 126-127.   As a

result, Mr. Byrum at his death continued to have the right to

vote not less than 71 percent of the common stock in each of the

three corporations.     Id. at 128-129.   The three corporations were

involved in lithography-related businesses and had a substantial

number of minority shareholders unrelated to Mr. Byrum.        Id. at

130 & n.2, 142 & n.20.    (The Supreme Court noted that 11 of 12, 5

of 8, and 11 of 14 stockholders, respectively, in the three

corporations appeared to be unrelated to Mr. Byrum.      Id. at 142

n.20.)    The trust instrument specified that there be, and

Mr. Byrum named, an independent corporate trustee.      Id. at 126.

The trustee was authorized in its “absolute and sole discretion”

to pay income and principal to or for the benefit of the

beneficiaries.     Id. at 127.

     The Commissioner argued that, by retaining voting control

over the corporations, Mr. Byrum was in a position to select the

corporate directors and thereby to control corporate dividend

policy.     Id. at 131-132.   According to the Commissioner, the

scenario in dispute gave Mr. Byrum the ability to regulate the

flow of income to the trust, which ability was characterized as

tantamount to a grantor-trustee’s power to accumulate trust

income for remaindermen or to distribute to present
                                   - 31 -

beneficiaries.     Id. at 132.   The Court had previously ruled that

the latter power to accumulate rather than disburse constituted a

right to designate under section 2036(a)(2).       Id. at 135-136;

United States v. O’Malley, 383 U.S. 627, 631 (1966).

     Given the above facts, the Supreme Court held “that Byrum

did not have an unconstrained de facto power to regulate the flow

of dividends to the trust, much less the ‘right’ to designate who

was to enjoy the income from trust property.”       United States v.

Byrum, 408 U.S. at 143.    The Court rejected the Commissioner’s

“control rationale” as it “would create a standard--not specified

in the statute--so vague and amorphous as to be impossible of

ascertainment in many instances.”       Id. at 137 n.10.   In reaching

its conclusion, the Court relied on a series of “economic and

legal constraints” to which any power that Mr. Byrum might have

had was subject and which prevented such power from being

equivalent to a right to designate persons to enjoy trust income.

Id. at 144.

     The Court emphasized that the independent corporate trustee

alone had the right under the trust instrument to pay out or

withhold income.     Id. at 137.    Even if Mr. Byrum had managed to

flood the trust with dividends, he had no way of compelling the

trustee to pay out or accumulate that income.       Id. at 143.    The

Court also noted that the power to elect directors conferred no

legal right to command them to pay or not pay dividends.          Id. at
                               - 32 -

137.    Moreover, the flow of dividends from the corporations would

be subject to economic vicissitudes, retained earnings policies,

and business needs.    Id. at 139-140.   In this regard, the Court

explained:

            There is no reason to suppose that the three
       corporations controlled by Byrum were other than
       typical small businesses. The customary vicissitudes
       of such enterprises--bad years; product obsolescence;
       new competition; disastrous litigation; new, inhibiting
       Government regulations; even bankruptcy--prevent any
       certainty or predictability as to earnings or
       dividends. There is no assurance that a small
       corporation will have a flow of net earnings or that
       income earned will in fact be available for dividends.
       Thus, Byrum’s alleged de facto “power to control the
       flow of dividends” to the trust was subject to business
       and economic variables over which he had little or no
       control. [Id. at 249.]

       Furthermore, the Supreme Court stressed that “A majority

shareholder has a fiduciary duty not to misuse his power by

promoting his personal interests at the expense of corporate

interests” and the directors of a corporation “have a fiduciary

duty to promote the interests of the corporation.”       Id. at 137-

138.    Such duties were legally enforceable by means of, for

example, a derivative suit.    Id. at 141-142.

       With respect to the case at bar, the estate asserts that

decedent retained no legally enforceable rights of the genre

required by United States v. Byrum, supra.       The estate emphasizes

that management powers are insufficient to warrant inclusion and

points out that, under the SFLP agreement, the limited partner

was without even the right to exercise any managerial authority.
                              - 33 -

The estate likewise reiterates that “right” as used in section

2036(a)(2) is not to be construed as control and notes that,

under the TRLPA, Tex. Rev. Civ. Stat. Ann. art. 6132a-1, sec.

3.03 (Vernon Supp. 2003), a limited partner expressly does not

participate in control of the business of a partnership by virtue

of acting as an officer, director, or stockholder of a corporate

general partner.   In this connection, the estate also remarks

that, as a minority shareholder of Stranco, decedent was without

the ability to elect a majority of directors, thus retaining even

less control than was present in United States v. Byrum, supra.

     Moreover, the estate repeatedly invokes the concept that

“any power which Mr. Strangi or Stranco might have would be

subject to state law fiduciary duties.    Such fiduciary duties

effectively render Section 2036(a)(2) inapplicable under the

teaching of Byrum.”

     Conversely, it is respondent’s position that United States

v. Byrum, supra, fails to shield the assets placed in SFLP and

Stranco from the reach of section 2036.    Respondent avers that

decedent had legally enforceable rights based on the relevant

written agreements, not mere de facto control or influence.

Respondent argues that decedent’s rights go beyond the management

powers and influence at issue in United States v. Byrum, supra,

and extend to designation of persons who shall enjoy entity

property and income.   Respondent sets forth several ways in which
                                 - 34 -

decedent’s authority can be derived from the provisions of the

governing documents and the roles played by the family members

involved.    Furthermore, respondent maintains that no impediments

comparable to those in United States v. Byrum, supra, existed to

constrain decedent’s powers and that the Supreme Court’s

reasoning is therefore inapplicable here.      In the particular

circumstances of this case, we agree with respondent.

            a.    Legally enforceable rights

     On these facts, decedent can properly be described as

retaining a right to designate who shall enjoy property and

income from SFLP and Stranco within the meaning of section

2036(a)(2).      In this regard, it is immaterial whether we

characterize the pertinent documents and relationships as

creating rights exercisable by decedent alone, in conjunction

with other Stranco shareholders, or in conjunction with Stranco’s

president.    See sec. 20.2036-1(b)(3), Estate Tax Regs.

     With respect to SFLP income and as previously recounted in

greater detail, the SFLP agreement named Stranco managing general

partner and conferred on the managing general partner sole

discretion to determine distributions.      The Stranco shareholders,

including decedent (through Mr. Gulig), then acted together to

delegate this authority to Mr. Gulig through the management

agreement.    The effect of these actions placed decedent’s

attorney in fact in a position to make distribution decisions.
                             - 35 -

Mrs. Gulig effectuated such decisions by executing checks to the

recipients so designated.

     In addition to the rights described above related to income,

decedent also retained the right, acting in conjunction with

other Stranco shareholders, to designate who shall enjoy the

transferred SFLP property itself.   The Supreme Court indicated in

United States v. Byrum, 408 U.S. at 143 n.23 (citing Commissioner

v. Estate of Holmes, 326 U.S. 480 (1946)), that a “power to

terminate the trust and thereby designate the beneficiaries at a

time selected by the settlor” would implicate section 2036(a)(2).

Pursuant to the SFLP agreement, the partnership would be

dissolved and terminated upon a unanimous vote of the limited

partners and the unanimous consent of the general partner.    The

shareholders agreement likewise specifies that dissolution of

SFLP requires the affirmative vote of all Stranco shareholders.

Once dissolution and termination occur, liquidation is

accomplished as set forth in the SFLP agreement.   The managing

general partner is named as the liquidator, which in turn

disburses partnership assets first in payment of debts and then

in repayment of partners’ capital account balances.   Authority is

expressly granted for distributions in kind.   Accordingly,

decedent can act together with other Stranco shareholders

essentially to revoke the SFLP arrangement and thereby to bring

about or accelerate present enjoyment of partnership assets.
                              - 36 -

Furthermore, it is noteworthy that such action would likely

revest in decedent himself, as the 99-percent limited partner,

the majority of the contributed property.

     As regards property transferred to Stranco and income

therefrom, decedent held the right, in conjunction with one or

more other Stranco directors, to declare dividends.     The

corporation’s bylaws authorize the board of directors to declare

dividends from the entity.   For the board to take such action, a

majority vote of the directors at a meeting with a quorum present

is sufficient.   Under the bylaws, a majority of the directors

then serving constitutes a quorum.     Because Stranco had five

directors, a quorum would consist of three, so two directors

(e.g., decedent through Mr. Gulig and one other) could

potentially act together to declare a dividend.     The Stranco

shareholders agreement further provided that each of the initial

five directors would be reelected annually, thus effectively

ensuring decedent’s position on the board.

     In response to various of the above concepts pertaining to

joint action, particularly by stockowners, the estate suggests:

“If the mere fact that a shareholder could band together with all

of the other shareholders of a corporation and such banding

together would be sufficient to cause inclusion under Section

2036, then it would have been impossible for the United States

Supreme Court to reach the decision that it did in Byrum.”        The
                              - 37 -

estate’s observation ignores the existence in United States v.

Byrum, supra, of the independent trustee who alone had the

ability to determine distributions from the disputed trust,

notwithstanding any prior action by corporate owners or

directors.   It also ignores the identity of the shareholders in

this case and the dual roles played by Mr. Gulig.

     To summarize, review of the documentary evidence discussed

above reveals that decedent here retained rights of a far

different genre from those at issue in United States v. Byrum,

supra.   Rather than mere “control”, management, or influence,

there are traceable to decedent through the explicit provisions

of the governing instruments ascertainable and legally

enforceable rights to designate persons who shall enjoy the

transferred property and its income.   The estate’s reliance on a

limited partner’s lack under the TRLPA of participation in

control and under the SFLP agreement of management authority is

thus misplaced.   The alleged absence of such powers cannot negate

the dispositive rights granted in the instant case.   The

SFLP/Stranco arrangement placed decedent in a position to act,

alone or in conjunction with others, through his attorney in

fact, to cause distributions of property previously transferred

to the entities or of income therefrom.   Decedent’s powers,

absent sufficient limitation as discussed infra, therefore fall

within the purview of section 2036(a)(2).
                               - 38 -

          b.   Constraints upon rights to designate

     The Supreme Court in United States v. Byrum, supra, relied

upon several impediments to the exercise of powers held by

Mr. Byrum in concluding that such powers did not warrant

inclusion under section 2036(a)(2).     Here, the rights held by

decedent are of a different nature and were not accompanied by

comparable constraints.    In our view, the constraints alleged by

the estate are illusory.

     One circumstance highlighted by the Supreme Court was the

existence of an independent trustee with the sole authority

ultimately to pay or withhold income from the trust.     Here, in

contrast, no similar layer of independence was interposed.

Rather, decisions with respect to distributions were placed in

Stranco, of which decedent owned 47 percent and was the largest

shareholder.   All decisions ultimately were made by Mr. Gulig,

who continued to act as decedent’s attorney in fact.

     Another element stressed by the Supreme Court was the manner

in which the flow of funds allegedly under Mr. Byrum’s control

would be subject to economic and business realities consequent

upon the status of the relevant corporations as typical small

operating enterprises.    Earnings and dividends of a small

operating company could be affected by, inter alia, changes in

products, in competition, or in industry regulation and outlook;

use of funds for replacement of plant and equipment or for growth
                                - 39 -

and expansion; and the need to retain sufficient earnings for

working capital.   These complexities do not apply to SFLP or

Stranco, which held only monetary or investment assets.

     Yet another constraining factor cited by the Supreme Court

was the presence of fiduciary duties held by directors and

shareholders, and it is upon this aspect of the Supreme Court’s

opinion that the estate focuses.    The Supreme Court emphasized

that corporate directors and shareholders have a fiduciary duty

to promote the best interests of the entity, as opposed to their

personal interests.   The Supreme Court further pointed to a

substantial number of unrelated minority shareholders who could

enforce these duties by suit.

     The fiduciary duties present in United States v. Byrum, 408

U.S. 125 (1972), ran to a significant number of unrelated parties

and had their genesis in operating businesses that would lend

meaning to the standard of acting in the best interests of the

entity.   As a result, there existed both a realistic possibility

for enforcement and an objective business environment against

which to judge potential dereliction.    Given the emphasis that

the Supreme Court laid on these factual realities, Byrum simply

does not require blind application of its holding to scenarios

where the purported fiduciary duties have no comparable

substance.   We therefore analyze the situation before us to
                             - 40 -

determine whether the fiduciary duties relied upon by the estate

would genuinely circumscribe use of powers to designate.

     The estate summarizes its contentions regarding fiduciary

duties as follows:

     Just like Mr. Byrum, Mr. Strangi’s “rights” (whatever
     those rights appear to be) were severely limited by the
     fiduciary duties of other people who (according to
     Byrum) presumably could be counted on the [sic] observe
     those restraints against whatever desires they might
     otherwise have had to run pell-mell to do the bidding
     of the Decedent: (1) Mr. Gulig, who (separate and
     apart from his role as attorney-in-fact for
     Mr. Strangi) had fiduciary duties to Stranco, whom he
     served as manager; (2) the directors of Stranco, who
     had fiduciary duties to both Stranco and to SFLP as a
     whole; and (3) McLennan County Community College
     (“MCCC”), which had rights as a minority shareholder of
     Stranco and a fiduciary obligation to enforce such
     rights for the benefit of its own beneficiaries as well
     as the people of the State of Texas (with the Attorney
     General of Texas having the ability to step in to
     enforce such rights if MCCC failed in its duties).
     * * *

None of the foregoing obligations cited by the estate is

sufficiently on par with those detailed in United States v.

Byrum, supra, to bring the present case within the Supreme

Court’s rationale.

     Concerning Mr. Gulig, any fiduciary duties that Mr. Gulig

might have had in his role as manager of Stranco (and thereby of

SFLP) are entitled to comparatively little weight on these facts.

Prior to his instigation of the SFLP/Stranco arrangement, Mr.

Gulig stood in a confidential relationship, and owed fiduciary

duties, to decedent personally as his attorney in fact.    Thus, to
                               - 41 -

the extent that Stranco or SFLP’s interests might diverge from

those of decedent, we do not believe that Mr. Gulig would

disregard his preexisting obligation to decedent.

     As regards fiduciary obligations of Stranco and its

directors, these duties, too, have little significance in the

present context.    Although Stranco would owe a fiduciary duty to

SFLP and to the limited partners, decedent owned the sole,

99-percent limited partnership interest.    The rights to designate

traceable to decedent through Stranco cannot be characterized as

limited in any meaningful way by duties owed essentially to

himself.    Nor do the obligations of Stranco directors to the

corporation itself warrant any different conclusion.    Decedent

held 47 percent of Stranco, and his own children held 52 of the

remaining 53 percent.    Intrafamily fiduciary duties within an

investment vehicle simply are not equivalent in nature to the

obligations created by the United States v. Byrum, supra,

scenario.

     With respect to the role of MCC Foundation, United States v.

Byrum, supra, affords no basis for permitting outcomes under

section 2036(a)(2) to turn on factors amounting to no more than

window dressing.    A charity given a gratuitous 1-percent interest

would not realistically exercise any meaningful oversight.

     Lastly, we are unpersuaded that any different result should

obtain on account of the Commissioner’s having taken a contrary
                              - 42 -

position in certain previous administrative rulings.   As the

estate repeatedly brings to our attention, the Commissioner has

cited United States v. Byrum, supra, in such rulings for the

principle that fiduciary constraints counsel against inclusion of

family limited partnership assets under section 2036(a)(2).     See,

e.g., Priv. Ltr. Rul. 94-15-007 (Apr. 15, 1994); Priv. Ltr. Rul.

93-10-039 (Mar. 12, 1993); Tech. Adv. Mem. 91-31-006 (Aug. 2,

1991).   These written determinations are expressly declared by

statute to be without precedential force.   Sec. 6110(k)(3).

Thus, any claimed reliance on them is unavailing.   In any event,

cursory exposition in limited factual circumstances does not

preclude our analysis of statutory provisions and regulations in

the context of this case.

     In sum, the estate’s averment that decedent’s “‘rights’

* * * were severely limited by the fiduciary duties of other

people who (according to Byrum) presumably could be counted on

* * * [to] observe those restraints” rests on a faulty legal

premise and ignores factual realities.   First, the Supreme

Court’s opinion in United States v. Byrum, supra, provides no

basis for “presuming” that fiduciary obligations will be enforced

in circumstances divorced from the safeguards of business

operations and meaningful independent interests or oversight.

Second, the facts of this case belie the existence of any genuine

fiduciary impediments to decedent’s rights.   We conclude that the
                                - 43 -

value of assets transferred to SFLP and Stranco is includable in

decedent’s gross estate under section 2036(a)(2).

     D.    Existence of Consideration

     Having decided that decedent retained an interest in the

assets transferred to SFLP and Stranco for purposes of section

2036(a), we evaluate whether the statute’s application may

nonetheless be avoided on the basis of the parenthetical

exception for “a bona fide sale for an adequate and full

consideration in money or money’s worth”.     Availability of the

exception rests on two requirements:     (1) A bona fide sale,

meaning an arm’s-length transaction, and (2) adequate and full

consideration.    See Estate of Harper v. Commissioner, T.C. Memo.

2002-121.    The situation before us meets neither of these

criteria.

     First, no bona fide sale, in the sense of an arm’s-length

transaction, occurred in connection with decedent’s transfer of

property to SFLP and Stranco.    Mr. Gulig, as decedent’s attorney

in fact, prepared the arrangement using Fortress materials in

absence of any meaningful negotiation or bargaining with other

anticipated interest-holders.    He determined how the entities

would be structured and operated, what property would be

contributed, and what interests various parties would obtain

therein.    Hence, decedent essentially stood on both sides of the

transaction, a fact unchanged by the manner in which the Strangi
                                - 44 -

children opted to join after the substantive decisions had been

made.

     Second, full and adequate consideration does not exist

where, as here, there has been merely a “recycling” of value

through partnership or corporate solution.     See Estate of

Thompson v. Commissioner, T.C. Memo. 2002-246; Estate of Harper

v. Commissioner, supra; Kimbell v. United States, 244 F. Supp. 2d

700 (N.D. Tex. 2003).     As we recently explained in Estate of

Harper v. Commissioner, supra:

        to call what occurred here a transfer for consideration
        within the meaning of section 2036(a), much less a
        transfer for an adequate and full consideration, would
        stretch the exception far beyond its intended scope.
        In actuality, all decedent did was to change the form
        in which he held his beneficial interest in the
        contributed property. * * * Without any change
        whatsoever in the underlying pool of assets or prospect
        for profit, as, for example, where others make
        contributions of property or services in the interest
        of true joint ownership or enterprise, there exists
        nothing but a circuitous “recycling” of value. We are
        satisfied that such instances of pure recycling do not
        rise to the level of a payment of consideration. To
        hold otherwise would open section 2036 to a myriad of
        abuses engendered by unilateral paper transformations.

        We see no distinction of consequence between the scenario

analyzed in Estate of Harper v. Commissioner, supra, and that of

the present case.     Decedent contributed more than 99 percent of

the total property placed in the SFLP/Stranco arrangement and

received back an interest the value of which derived almost

exclusively from the assets he had just assigned.     Furthermore,

the SFLP/Stranco arrangement patently fails to qualify as the
                               - 45 -

sort of functioning business enterprise that could potentially

inject intangibles that would lift the situation beyond mere

recycling.    Cf. Estate of Harrison v. Commissioner, T.C. Memo.

1987-8; Church v. United States, 85 AFTR 2d 2000-804, 2000-1 USTC

par. 60,369 (W.D. Tex. 2000), affd. without published opinion 268

F.3d 1063 (5th Cir. 2001) (both involving contributions by other

participants not de minimis in nature, for a genuine pooling of

interests).    We therefore hold that decedent did not engage in

any transfer for consideration upon the creation and funding of

SFLP and Stranco.    Accordingly, the estate is entitled to no

exception to the treatment mandated by section 2036(a).

II.   Amount Includable

      With respect to the amount includable in decedent’s gross

estate on account of a retained interest, the estate makes the

following assertion:

      I.R.C. sec. 2036(a) only requires inclusion of property
      in a decedent’s estate to the extent that the decedent
      retained an interest in the transferred property.
      Assuming arguendo that Decedent did retain an interest
      in some of the property transferred to SFLP, I.R.C.
      sec. 2036 does not automatically require inclusion of
      all of the property transferred by Decedent to SFLP and
      Respondent has not sustained his burden of proof of
      establishing the extent, if any, of any retained
      interest.

The foregoing premise, however, rests on a faulty understanding

of the statute’s operation.    As we recently explained in Estate

of Thompson v. Commissioner, supra:
                              - 46 -

          Section 2036(a) effectively includes in the gross
     estate the full fair market value, at the date of
     death, of all property transferred in which the
     decedent had retained an interest, rather than the
     value of only the retained interest. Fidelity-
     Philadelphia Trust Co. v. Rothensies, 324 U.S. 108
     (1945). This furthers the legislative policy to
     “include in a decedent’s gross estate transfers that
     are essentially testamentary--i.e., transfers which
     leave the transferor a significant interest in or
     control over the property transferred during his
     lifetime.” United States v. Estate of Grace, 395 U.S.
     316, 320 (1969). Thus, an asset transferred by a
     decedent while he was alive cannot be excluded from his
     gross estate unless he “absolutely, unequivocally,
     irrevocably, and without possible reservations, parts
     with all of his title and all of his possession and all
     of his enjoyment of the transferred property.”
     Commissioner v. Estate of Church, 335 U.S. 632, 645
     (1949). * * * [Emphasis added.]

Regulations further detail that “If the decedent retained or

reserved an interest or right with respect to a part only of the

property transferred by him, the amount to be included in his

gross estate under section 2036 is only a corresponding

proportion”.   Sec. 20.2036-1(a), Estate Tax Regs.   Accordingly,

caselaw and regulatory authority converge to indicate that the

full value of transferred property is includable unless there

existed some specific portion of the contributed assets that the

retained interest or rights could not reach.

     Here, the record reveals that no part of the transferred

property was exempt from the rights or enjoyment retained by

decedent.   The relevant documents make no distinction among the

various assets contributed, nor does the evidence reflect that

Mr. Gulig looked to particular assets in determining whether
                              - 47 -

amounts should be distributed.   The preponderance of the evidence

therefore establishes that the full value of the transferred

assets is includable under section 2036(a).

     Pursuant to section 2036(a), 99 percent of the net asset

value of SFLP and 47 percent of the value of assets held by

Stranco should be included in decedent’s gross estate.

Nonetheless, because respondent never asserted an increased

deficiency in connection with the section 2036 issue, valuation

of the property in dispute, i.e., interests in SFLP and Stranco,

will be limited by the amounts determined in the notice of

deficiency.   The decision to be entered, however, will take into

account any additional deductions to which the estate is entitled

for costs and expenses incurred subsequent to the initial trial

of this case.

     To reflect the foregoing,


                                         Decision will be entered

                                    under Rule 155.
