Jan 1, 2007 12:00 PM, Rorie M. Sherman Editor in Chief

By: Rorie M. Sherman Editor in Chief

David A. Handler, partner in the Chicago office of Kirkland & Ellis LLP, reports:

• Eighth Circuit affirms Korby. The U.S. Court of Appeals for the Eighth Circuit has affirmed the Tax Court's decisions in Estate of Austin Korby v. Commissoner, T.C. Memo. 2005-103 (2005) and Estate of Edna Korby, T.C. Memo. 2005-102 (2005). In affirming the Tax Court, the appellate court held that assets the Korbys transferred to a limited partnership were included in their estates, because there was an implied agreement that they would receive income from the property during their lives and the transfer to the partnership was not a bona fide sale for adequate and full consideration. 2006 TNT 237-8 (Dec. 8, 2006).

• QFOBI deduction denied to estate. In Estate of Ronald G. Keeton v. Comm'r, T.C. Memo. 2006-263 (Dec. 13, 2006), the Tax Court held that the decedent's estate was not entitled to the qualified family-owned business interest (QFOBI) deduction, because it did not satisfy the requirements of Internal Revenue Code Section 2057(b)(1). That IRC section requires the sum of (1) the “adjusted value” of the qualified family-owned business interests plus (2) the amount of the gifts includible under IRC Section 2057(b)(3) to exceed 50 percent of the adjusted gross estate. Further, Section 2057(b)(1)(D) requires that, during the eight-year period ending on the date of the decedent's death, there were periods aggregating five years or more during which the business interests were owned by the decedent or a member of the decedent's family, and there was material participation by the decedent or a member of the decedent's family in the operation of the business.

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