                         T.C. Memo. 2008-221



                       UNITED STATES TAX COURT



               BIANCA GROSS, DONOR, Petitioner v.
          COMMISSIONER OF INTERNAL REVENUE, Respondent



     Docket No. 9693-06.               Filed September 29, 2008.



     Kathryn Keneally and Jeffrey M. Marks, for petitioner.

     Gerard Mackey, for respondent.



             MEMORANDUM FINDINGS OF FACT AND OPINION


     HALPERN, Judge:    By notice of deficiency dated February 22,

2006 (the notice), respondent determined a deficiency in

petitioner’s 1998 Federal gift tax of $120,583.22.

     Unless otherwise indicated, all section references are to

the Internal Revenue Code in effect for 1998.

     The principal issue for decision is whether petitioner’s

transfer of securities to a family limited partnership
                               - 2 -

constituted indirect gifts of a portion of those securities to

the other members of the partnership.

                          FINDINGS OF FACT

     Some of the facts have been stipulated and are so found.

The stipulation of facts, with accompanying exhibits, is

incorporated herein by this reference.

     At the time she filed the petition, petitioner resided in

the State of New York.

Background

     Petitioner, a widow, has two adult children, Diane Gross

Marks and Marian Gross.

     Over the years, petitioner, an investor, has bought and sold

securities.   By 1998, she had acquired a sizable portfolio of

publicly traded securities.   Earlier, following her husband’s

death in 1996, she had begun to consider her own mortality and

her desire to involve her daughters in managing what someday

would become theirs (i.e., her securities portfolio). Because she

deemed one of her daughters extravagant, she considered a trust

arrangement, but she rejected that because her other daughter

declined to serve as a trustee.   She settled on a family limited

partnership, which she believed would encourage her daughters to

work together and learn from her experience while preserving in

her (as sole general partner) control over the partnership’s

assets.   She had several discussions with her daughters about the

partnership arrangement, culminating in an agreement among
                               - 3 -

petitioner and her daughters by July 15, 1998, to form a limited

partnership.   She and her daughters agreed to the following:

     -- Each would contribute a small amount of cash to the

        partnership ($100 from petitioner and $10 from each

        daughter), and petitioner would contribute securities.

     -- As the general partner and majority owner, petitioner

        would retain ultimate control over management of the

        partnership, including the authority to make decisions

        about sales, purchases, and other dispositions of the

        partnership’s assets, and petitioner would have

        exclusive discretion concerning the timing and amounts

        of distributions to the partners.

     -- The daughters would not be able to transfer their

        interests in the partnership without petitioner’s

        approval.

     -- The daughters could not withdraw from the partnership,

        nor were they entitled to a return of their capital

        contributions.

     -- The daughters could not force a dissolution of the

        partnership.

     -- Each partner’s interest in the partnership would be

        based on the amount of her contribution of capital to

        the partnership.
                                 - 4 -

Dimar Holdings L.P.

     On July 15, 1998, petitioner caused a certificate of limited

partnership for “Dimar Holdings L.P.” (the Dimar certificate and

Dimar or the partnership, respectively) to be filed with the New

York Department of State.   She also caused notice of the

formation of Dimar as a limited partnership to appear in New York

newspapers, and, on October 14, 1998, she caused an affidavit of

publication to be filed with the New York Department of State.

     On July 31, 1998, petitioner’s daughters each drew checks

for $10 to the order of Dimar.    On November 16, 1998, petitioner

drew a check for $100 to the order of Dimar.

     From the beginning of October 1998 through December 4, 1998,

petitioner transferred ownership of shares of stock from her name

to Dimar’s name (the Dimar securities).   The Dimar securities

were mostly, if not all, common shares of well-known, publicly

traded companies.   As the redesignated stock certificates were

returned to her, she recorded the transfers in a notebook, titled

“Dimar”, that she maintained to record various transactions with

respect to Dimar.   By mid-December 1998, petitioner had recorded

Dimar’s portfolio on a computer program that tracked the

performance of the portfolio on a continuous basis.    The fair

market value of the portfolio on December 15, 1998, was

$2,158,646, while the value of all of Dimar’s assets on that date

was $2,158,766.   The $120 difference was due to the cash

contributions from petitioner and her two daughters.
                              - 5 -

     Dimar filed a Form 1065, U.S. Partnership Return of Income,

for 1998 signed by petitioner as general partner.   The return

shows that Dimar commenced business on July 15, 1998.

The Deeds of Gift

     Petitioner and her daughters assembled for a family holiday

either on or shortly before December 15, 1998.   At that meeting

(the December 15 meeting), petitioner and each of her daughters

executed a document styled “Deed of Gift”.   Among other things,

each such document provides that petitioner is transferring to

the named daughter a 22.25-percent interest as a limited partner

in Dimar.

The Dimar Partnership Agreement

     Also at the December 15 meeting, petitioner and her

daughters executed a document styled “Limited Partnership

Agreement of Dimar Holdings L.P.” (the Dimar agreement).    Among

other things, the Dimar agreement provides that petitioner is the

general partner, the daughters are limited partners, the purposes

of the partnership include managing the partnership’s investments

in securities, limited partners are restricted both in disposing

of their partnership interests and in withdrawing capital from

the partnership, distributions are at the discretion of the

general partner, the powers of the partnership are to be

exercised by or under the direction of the general partner, and,

except as specifically provided in the agreement or as required

by law, the limited partners are to take no part in the

management of the business and affairs of the partnership.
                               - 6 -

The Gift Tax Return

     Petitioner filed a Form 709, United States Gift (and

Generation-Skipping Transfer) Tax Return, for 1998 (the Form 709)

on which she reported December 15, 1998, gifts of a 22.25-percent

limited partnership interest in Dimar to each of her daughters.

Petitioner reported that the value of each of those gifts was

$312,500.   A schedule attached to the Form 709 contains

information pertinent to the gifts.    It includes a list of the

Dimar securities under the heading “Securities Contributed to

Partnership on 12/15/98”.   It states that the market value of

those securities on December 15, 1998, was $2,158,646.     It

includes computations of the partners’ capital accounts, showing

initial contributions of $100, $10, and $10 for petitioner and

her daughters, respectively.   It shows that petitioner’s capital

account was credited in the amount of $2,158,646 because of her

contribution of the Dimar securities to the partnership and was

then debited in the amount of $960,598 because of her gifts

($480,299 each) to her daughters, whose capital accounts were

credited because of the gifts in the amount of $480,299 each.

The schedule also shows that the reported value of each gift

results from applying an approximately 35-percent discount to a

prediscount value of $480,299 for each gift.1   The 35-percent




     1
        The pre-discount value of $480,299 for each gift
apparently is derived by applying 22.25 percent to the reported
fair market value of the Dimar securities on Dec. 15, 1998
($480,299 = 22.25% x $2,158,646).
                                - 7 -

discount is attributed to “minority interest”, “lack of control”,

and “lack of marketability”.

The Notice

      Following an examination of the Form 709, respondent issued

the notice.    The notice explains that respondent’s adjustments

giving rise to the deficiency in tax resulted from his

determination that petitioner made indirect gifts to each of her

daughters of securities when she contributed the Dimar securities

to Dimar rather than direct gifts of 22.25-percent interests in

Dimar.    The notice claims that the value of each indirect gift

was $480,299.

                               OPINION

I.   Introduction

      We must determine whether petitioner made indirect gifts of

securities to her daughters.    Respondent’s theory of the case

begins with his supposition that, on December 15, 1998, three

events occurred:    (1) Petitioner and her daughters formed Dimar

(a family limited partnership), (2) each daughter acquired a

22.25-percent limited partnership interest in Dimar, and (3)

petitioner then contributed the Dimar securities to the

partnership (with 22.25 percent of the value of the contribution,

$480,299, being credited to each daughters’ capital account).      On

that basis, respondent concludes that petitioner made an indirect

gift of $480,299 worth of securities to each daughter.2

      2
        Taking account of petitioner’s and the daughters’ cash
contributions of $100, $10, and $10, respectively, respondent
                                                   (continued...)
                                - 8 -

      Petitioner’s theory of the case differs from respondent’s

principally with respect to the timing of the key events.    She

argues that Dimar was formed on July 15, 1998, the Dimar

securities were all contributed by December 4, 1998, and the

gifts (which were of partnership interests) occurred long enough

thereafter (on December 15, 1998) that no indirect gift of

securities can be supposed.    Petitioner also relies on a

stipulation that, if the Court finds that, on December 15, 1998,

petitioner made direct gifts of limited partnership interests to

the daughters, then, taking into account applicable discounts,

the value of each gift was $312,500, as petitioner reported on

the Form 709.

      We shall first describe the indirect gift theory.   We shall

then discuss whether it has any application to the facts before

us and resolve any remaining valuation questions.

II.   Indirect Gifts

      Section 2501(a) imposes a tax on an individual’s transfer of

property by gift during the year.    The tax is imposed on the

value of the gifts made during the year.    See sec. 2502(a).    The

value of a gift of property is the value thereof on the date of

transfer.   Sec. 2512(a).   The value of a gift of property is

determined by the value of the property passing from the donor

and not necessarily by the measure of enrichment resulting to the


      2
      (...continued)
calculates the indirect gift to each daughter to be $480,315.
But in the notice, he calculated the indirect gifts to be
$480,299, and he does not assert an increased deficiency.
                                 - 9 -

donee from the transfer.   Sec. 25.2511-2(a), Gift Tax Regs.

Where property is transferred for less than adequate and full

consideration in money or money’s worth (hereafter, simply,

adequate consideration), then the excess of the value of the

property transferred over the consideration received is generally

deemed a gift.   Sec. 2512(b).   The gift tax applies whether the

gift is direct or indirect.   Sec. 2511(a).     Section

25.2511-1(h)(1), Gift Tax Regs., illustrates an indirect gift

made by a shareholder of a corporation to the other shareholders

of the corporation.   The shareholder transfers property to the

corporation for less than adequate consideration.      The regulation

concludes that, generally, such a transfer represents gifts by

the shareholder to the other individual shareholders to the

extent of their proportionate interests in the corporation.

Similarly, if a partner transfers property to a partnership for

less than adequate consideration, the transfer generally will be

treated as an indirect gift by the transferor to the other

partners.   See, e.g., Shepherd v. Commissioner, 115 T.C. 376, 389

(2000), affd. 283 F.3d 1258 (11th Cir. 2002).      Indeed, in

affirming the Tax Court, the Court of Appeals said: “[G]ifts to a

partnership, like gifts to a corporation, are deemed to be

indirect gifts to the stakeholders ‘to the extent of their

proportionate interests’ in the entity.      See * * * [sec.
25.2511-1(h)(1), Gift Tax Regs.].”       Shepherd v. Commissioner, 283

F.3d at 1261.
                                  - 10 -

III.   Discussion

       A.   Introduction

       Whether petitioner made indirect gifts of securities to her

daughters depends on whose version of events we accept:      Did all

of the relevant events occur on December 15, 1998, as respondent

claims, or was Dimar formed and funded a substantial time before

as petitioner claims?      We begin by examining New York partnership

law.    Respondent’s position is that execution of a partnership

agreement is a condition precedent to the formation of a limited

partnership under New York law, and, since the Dimar agreement

was not executed until December 15, 1998, Dimar did not come into

existence until that date.      Petitioner counters that Dimar was

properly formed as a limited partnership on July 15, 1998, when

petitioner caused a certificate of limited partnership for Dimar

to be filed with the New York Department of State, or,

alternatively, if Dimar did not qualify as a limited partnership

until December 15, 1998, then it was a general partnership under

New York law as of July 15, 1998.

       While the parties skirmish over the date or dates on which

petitioner contributed the Dimar securities to Dimar, we think

that, if petitioner is right that Dimar was established on July

15, 1998, she is also right that the securities were contributed

by December 4, 1998.       Because we think that she is right on both

counts, we conclude that petitioner did not make indirect gifts

of securities to her daughters.      We also agree with petitioner’s

valuation conclusion.      Our reasons follow.
                                  - 11 -

     B.   Formation of Dimar

          1.   Introduction

     New York limited partnerships formed after July 1, 1991, are

subject to the Revised Limited Partnership Act.    N.Y. Pship. Law

secs. 121-101 through 121-1300 (McKinney 1998).    In pertinent

part, N.Y. Pship. Law sec. 121-201, “Certificate of limited

partnership”, provides:

        (a) In order to form a limited partnership the
     general partners shall execute a partnership agreement,
     and a certificate of limited partnership shall be
     executed in accordance with section 121-204 of this
     article. The certificate * * * shall be filed with the
     department of state in accordance with section 121-206
     of this article * * *

                 *    *       *   *    *   *   *

        (b) A limited partnership is formed at the time of
     the filing of the initial certificate of limited
     partnership with the department of state or at any
     later time not to exceed sixty days from the date of
     filing specified in the certificate of limited
     partnership. The filing of the certificate shall, in
     the absence of actual fraud, be conclusive evidence of
     the formation of the limited partnership as of the time
     of filing or effective date if later, except in an
     action or special proceeding brought by the attorney
     general.

Additionally, subsection (c) of N.Y. Pship. Law sec. 121-201

contains a publication requirement that must be satisfied within

120 days after the filing of the certificate of limited

partnership.

          2.   Discussion

     Petitioner caused the Dimar certificate to be filed with the

New York Department of State on July 15, 1998, and neither party

argues that the publication requirement found in N.Y. Pship. Law
                               - 12 -

sec. 121-201(c) is unsatisfied.    Petitioner and her daughters did

not, however, execute the Dimar agreement until December 15,

1998.    As stated, respondent argues that execution of a

partnership agreement is a condition precedent to the formation

of a limited partnership pursuant to New York partnership law.

See N.Y. Pship. Law sec. 121-201(a).    He argues, therefore, that

Dimar did not come into existence until December 15, 1998.3

Petitioner argues that New York partnership law attaches no

limitation to the time in which the partnership agreement must be

executed, and she directs us to the language in N.Y. Pship. Law

sec. 121-201(b) providing that, except in circumstances not

applicable here:    “The filing of the certificate shall * * * be

conclusive evidence of the formation of the limited partnership

as of the time of filing or effective date if later”.       Noting

that the publication requirement found in N.Y. Pship. Law sec.

121-201 cannot be satisfied until after the certificate of

limited partnership is filed, petitioner argues:    “The Act thus

contemplates that a limited partnership may be formed before all

statutory formalities are completed.”    Continuing that the Dimar

certificate did not contain a delayed effective date, petitioner

     3
        Respondent argues on brief that, because the Dimar
agreement was signed more than 60 days after the Dimar
certificate was filed, see N.Y. Pship. Law sec. 101-201(b)
(McKinney 1998), it “is * * * questionable whether Dimar was
validly formed under New York law.” The argument that Dimar was
not formed is inconsistent with the basis of respondent’s
adjustment in the notice that petitioner made an indirect gift to
her daughters when she contributed the Dimar securities to the
partnership. Nor has respondent pled an alternative basis for
the deficiency he determined. We do not further consider the
argument that Dimar was not validly formed.
                              - 13 -

argues that Dimar was formed on July 15, 1998, the date the

certificate was filed.

     Neither party makes a compelling argument for their

interpretation of New York partnership law, and we have found no

persuasive authority on our own.   Since we agree with petitioner

that, were we to conclude that the Dimar agreement was not timely

executed so as to constitute Dimar a limited partnership on July

15, 1998, we must consider whether New York law would deem

petitioner and her daughters to have formed a general partnership

on that date, we shall proceed to that consideration.

     Under New York law, when parties seeking to form a limited

partnership do not satisfy the requirements necessary to form a

limited partnership, they may be deemed to have formed a general

partnership if their conduct indicates that they have agreed,

whether orally and whether expressly or impliedly, on all the

essential terms and conditions of their partnership arrangement.

Peerless Mills, Inc. v. AT&T Co., 527 F.2d 445, 449 n.1 (2d Cir.

1975); Canet v. Gooch Ware Travelstead, 917 F. Supp. 969, 994

(E.D.N.Y. 1996).   We agree with petitioner that the record

contains sufficient evidence for us to conclude that, at the time

petitioner caused the Dimar certificate to be filed on July 15,

1998, she and her daughters had agreed to form a partnership

essentially on the terms set forth in the Dimar agreement.

Petitioner and her daughters gave uncontradicted testimony that

they had agreed upon the essential terms and conditions of their

partnership arrangement just before the filing of the Dimar
                                  - 14 -

certificate.       We have set forth those terms and conditions in our

findings of fact, and they are consistent with the terms and

conditions of the Dimar agreement.         The daughters made their $10

cash contributions on July 31, 1998, and petitioner began

contributing securities to the partnership no later than November

10, 1998, and made her $100 cash contribution on November 16,

1998.     She contributed the bulk of the Dimar securities to the

partnership by the end of November 1998.        Petitioner kept a

record of her contributions in a notebook titled “Dimar”, and she

kept computer records of the performance of the Dimar portfolio.

Petitioner signed an income tax return for Dimar on April 5,

1999, reporting that Dimar commenced business on July 15, 1998.

Together, petitioner’s and her daughters’ testimony and their

conduct indicate to us that, on July 15, 1998, they agreed to all

the essential terms of their partnership arrangement, and we so

find.     If they failed to satisfy the requirements necessary to

form a limited partnership, we deem them to have formed a general

partnership on that date and on those terms.

             3.   Conclusion

        Dimar was formed as a partnership on July 15, 1998.

        C.   Contribution of the Dimar Securities

        We have found that, from the beginning of October 1998

through December 4, 1998, petitioner transferred the Dimar

securities from her name to Dimar’s name.        Respondent can have no

quarrel with that finding since it is based on a stipulation.

Nevertheless, respondent argues that, since Dimar was not formed
                              - 15 -

until December 15, 1998, petitioner could not have contributed

the securities to an entity that did not yet exist.   Respondent

buttresses his argument by pointing out that a schedule attached

to the Form 709 includes a list of Dimar securities under the

heading “Securities Contributed to the Partnership on 12/15/98”.

Petitioner relies on the argument that Dimar was formed on July

15, 1998, whether as a limited or general partnership, and the

schedule in question was included with the Form 709 solely in

support of the valuation of the partners’ capital accounts on

December 15, 1998.   Petitioner argues that the schedule was

clearly intended to be a list of the securities (all contributed

by petitioner before December 15, 1998) held by Dimar on that

date and was not intended to show that the securities had, in

fact, been contributed on that date.   Considering the Form 709 as

a whole, petitioner is convincing as to the purpose of the

schedule, and we have already concluded that Dimar was formed on

July 15, 1998.4   We conclude that petitioner contributed the

Dimar securities to Dimar during a period commencing in early

October 1998 and ending on December 4, 1998.

     4
        In further support of his claim that the Dimar securities
were not contributed to the partnership until Dec. 15, 1998,
respondent points out that a schedule attached to the Form 709
filed by petitioner shows that as of Dec. 15, 1998, petitioner’s
capital account reflected the full value of the Dimar securities
notwithstanding that the partnership had enjoyed $41,107 of net
appreciation in its portfolio that should in part have been
reflected in the values of the daughters’ capital accounts.
Petitioner responds that, after petitioner’s contribution of the
Dimar securities and before she made gifts of limited partnership
interests to the daughters, the daughters’ combined interest in
the appreciation was slight (less than 0.1 percent), and the
failure to allocate the appreciation may be ignored. We agree.
                                - 16 -

     D.   Indirect Gifts

          1.   Introduction

     Respondent argues that petitioner made indirect gifts to her

daughters because she contributed the Dimar securities to Dimar

for inadequate consideration.    She received inadequate

consideration, respondent argues, because, proportionate to her

interest in the partnership, only 55.50 percent of the value of

the securities was credited to her capital account.    She made

indirect gifts to her daughters, respondent continues, because,

proportionate to their interests in the partnership, the

remaining value of the securities was credited to their capital

accounts (22.25 percent apiece).    Respondent assumes that

petitioner’s transfer of interests in Dimar to her daughters

either preceded her contribution of the Dimar securities to Dimar

or should be deemed to have preceded that contribution under the

step transaction doctrine.    Petitioner argues that she made no

indirect gift of any portion of the Dimar securities to her

daughters since (1) 100 percent of the value of the Dimar

securities was credited to her capital account well in advance of

her gifts of interests in Dimar to her daughters, and (2) no

grounds exist to reorder those steps under the step transaction

doctrine.

          2.   Indirect Gifts in Fact

     In Estate of Jones v. Commissioner, 116 T.C. 121, 123-127

(2001), the decedent had formed two family limited partnerships

with his children and had contributed assets to the partnerships
                               - 17 -

in exchange for substantially all of the limited partnership

interests in the partnerships.    His contributions were credited

to his capital accounts.    On the day the partnerships were

formed, petitioner gave to his children substantially all of his

interests in the partnerships.    The decedent reported the gifts

for Federal gift tax purposes, discounting the values of the

gifts substantially on account of lack of marketability and for

other reasons.   In the case before us (the estate tax case), the

Commissioner argued that the sizable discounts applied to the

gifts indicated that the decedent had made taxable gifts upon

contributing his property to the partnerships (the gifts being

equal in value to the difference between the value of the

property contributed and the value of the limited partnership

interests received).   We found that the contributions of property

were properly reflected in the capital accounts of the decedent,

and the value of the other partners’ interests was not enhanced

by the decedent’s contributions.    Id. at 128.   Therefore, we

held, the contributions did not constitute taxable gifts.      Id.

     In Shepherd v. Commissioner, 115 T.C. at 379-381, the

taxpayer transferred real property and stock to a newly formed

family partnership in which he was a 50-percent owner and his two

sons were each 25-percent owners.    Rather than allocating

contributions to the capital account of the contributing partner,

the partnership agreement provided that any contributions would

be allocated pro rata to the capital accounts of each partner

according to ownership.    Because the contributions were reflected
                              - 18 -

partially in the capital accounts of the noncontributing

partners, the value of the noncontributing partners’ interests

was enhanced by the contributions of the taxpayer.    Therefore, we

held, the transfers to the partnership were indirect gifts by the

taxpayer to his sons of undivided 25-percent interests in the

real property and stock.   Id. at 389.

     We have concluded supra in section III.B.2. and C. of this

report that Dimar was formed as a partnership on July 15, 1998,

and that petitioner transferred the Dimar securities to Dimar

during a period commencing in early October 1998 and ending on

December 4, 1998.   Petitioner testified, and her daughters

confirmed, that, as she contributed the Dimar securities to

Dimar, her percentage interest in the partnership increased and

theirs decreased.   A schedule attached to the Form 709 shows that

petitioner’s capital account was increased because of her

contribution of the Dimar securities to the partnership and was

then decreased because of her gifts to her daughters, whose

capital accounts were increased on account thereof.    The parties

agree that petitioner made gifts to her daughters on December 15,

1998.

     The contributions of property in the case at hand are

similar in form to the contributions in Estate of Jones and are

distinguishable in form from the gifts in Shepherd.    Petitioner

made a series of contributions of securities to Dimar and

received increasing partnership interests in return.   All of the

contributions were reflected in her capital account, and the
                                - 19 -

value of her daughters’ capital accounts was not enhanced because

of her contributions.   After she contributed the Dimar securities

to the partnership, she made gifts of interests in the

partnership to her daughters.

     Before concluding that form and substance agree, however, we

shall consider respondent’s step transaction argument.

        3.   Indirect Gifts Under the Step Transaction Doctrine

     The step transaction doctrine embodies substance over form

principles; it treats a series of formally separate steps as a

single transaction if the steps are in substance integrated,

interdependent, and focused toward a particular result.    Where an

interrelated series of steps are taken pursuant to a plan to

achieve an intended result, the tax consequences are to be

determined not by viewing each step in isolation, but by

considering all of them as an integrated whole.    Holman v.

Commissioner, 130 T.C. __, __ (2008) (slip op. at 26) (citations

and quotation marks omitted).

     Holman is a family limited partnership case in which the

taxpayers made the first of a series of gifts of limited

partnership interests 6 days after forming and funding the

partnership with shares of a publicly traded company.     Id. at __
(slip op. at 27-28).    We described the Commissioner’s argument

with respect to that gift as being that the taxpayers’ “formation

and funding of the partnership should be treated as occurring

simultaneously with * * * [the gift] since the events were

interdependent and the separation in time between the first two
                                   - 20 -

steps (formation and funding) and the third (the gift) served no

purpose other than to avoid making an indirect gift under section

25.2511-1(h), Gift Tax Regs.”        Id. at __ (slip op. at 27).

Without intending to draw any bright lines, we rejected the

Commissioner’s argument because of our conclusion that the

taxpayers bore a real economic risk of a change in value of the

partnership for the 6 days that separated their transfer of the

shares to the partnership and the gift.        Id. at __ (slip op. at

30).       We concluded:   “[W]e shall not disregard the passage of

time and treat the formation and funding of the partnership and

the subsequent gifts as occurring simultaneously under the step

transaction doctrine.”        Id. at __ (slip op. at 31).

       We reach the same result here, where (1) 11 days passed

between petitioner’s conclusion of her transfer of the Dimar

securities to the partnership and her gifts of interests in the

partnership to her daughters, and (2) the Dimar securities were

mostly, if not all, common shares of well-known companies.5        The

step transaction doctrine does not cause us to change the actual

order of the transactions before us and conclude that petitioner

made indirect gifts of 22.25 percent of the value of the Dimar




       5
        We caution, however, in terms similar to those as we used
in Holman v. Commissioner, 130 T.C.    ,     n.7 (2008) (slip op.
at 31): The real economic risk of a change in value arises from
the nature of the Dimar securities as heavily traded, relatively
volatile common stocks. We might view the impact of a 11-day
hiatus differently in the case of another type of investment;
e.g., a preferred stock or a long-term Government bond.
                             - 21 -

securities to each of her daughters.6   The form of the

transactions here in question accords with their substance.

         4.    Conclusion

     On December 15, 1998, petitioner made gifts of interests in

Dimar to her daughters and did not make indirect gifts of

portions of the Dimar securities that she had contributed to the

partnership.




     6
        We have deemed that, if petitioner and her daughters
failed to satisfy the requirements necessary to form a limited
partnership, they formed a general partnership on July 15, 1998.
Sec. III.B.2. of this report, supra. Respondent’s position is
that Dimar came into existence, as a limited partnership, when
petitioner and her daughters signed the Dimar agreement on Dec.
15, 1998. The parties have not explored the tax consequences of
the Dimar agreement being effective to convert Dimar from a
general to a limited partnership. Sec. 708(b)(1) provides the
circumstances under which a partnership will be considered as
terminated. If Dimar were considered as terminated as a general
partnership before being reconstituted under the Dimar agreement
as a limited partnership, then respondent might argue that
petitioner received the Dimar securities from the terminated
general partnership before contributing them to the reconstituted
limited partnership while, at the same time, making gifts of
limited partnership interests to her daughters. See Senda v.
Commissioner, 433 F.3d 1044 (8th Cir. 2006) (relying on the step
transaction doctrine in affirming the Tax Court’s finding that
taxpayers made indirect gifts of shares of stock to partners in
family limited partnerships since transfers of securities to
partnerships and gifts of partnership interests were integrated
and simultaneous transactions), affg. T.C. Memo. 2004-160.
Respondent has perhaps not made that argument because he has
ruled that, generally, a partnership does not terminate upon its
conversion from a general to a limited partnership. Rev. Rul.
84-52, 1984-1 C.B. 157; see also Rev. Rul. 95-37, 1995-1 C.B. 130
(treating the conversion of an interest in a domestic partnership
into an interest in a domestic L.L.C. that is classified as a
partnership as a partnership to partnership conversion).
                                 - 22 -

     E.   Valuation

     The parties have stipulated that, if petitioner is found by

the Court to have made gifts of limited partnership interests in

Dimar to her daughters on December 15, 1998, then petitioner was

correct in reporting the value of each of those gifts as $312,500

on the Form 709.      We have found only that, on December 15, 1998,

petitioner made gifts of interests (not necessarily limited

partnership interests) in Dimar to her daughters.     Petitioner’s

expert witness gave uncontradicted testimony that, if Dimar were

a general rather than a limited partnership, and petitioner and

her daughters had agreed that the daughters would be subject to

the same limitations as set forth in the Dimar agreement, viz,

neither daughter could dispose of all or any portion of her

interest in the partnership, neither would have the right to

withdraw either her capital or participation in the partnership

or to receive distributions from the partnership, and neither

would have control of management or the business and affairs of

the partnership, then the fair market value of a 22.25-percent

interest in the partnership received by each of the daughters

would be worth the same as a 22.25-percent limited partnership

interest in a limited partnership governed by the Dimar

agreement.   He pegged that value as $277,868.    Petitioner states,

however, that she is not claiming a value for the gifts any less

than the value ($312,500) reported on the Form 709.
                                - 23 -

      We have found that, by the time petitioner caused the Dimar

certificate to be filed on July 15, 1998, she and her daughters

had agreed to form a partnership essentially on the terms set

forth in the Dimar agreement.     On the basis of petitioner’s

expert witness’s uncontradicted testimony, we find that, if, on

December 15, 1998, Dimar was a general partnership, the fair

market value of the interest in the partnership that petitioner

gave to each of her daughters was $312,500.

IV.   Conclusion

      To reflect the foregoing,


                                           Decision will be entered

                                      for petitioner.
