t c memo united_states tax_court estate of morton b harper deceased michael a harper executor petitioner v commissioner of internal revenue respondent docket no filed date hflp a limited_partnership was established in and was capitalized by the contribution thereto by d of the majority of his assets d was initially named as the sole limited_partner and his children m and l were designated as general partners d subsequently gave to m and l and 36-percent limited_partnership interests respectively at his death in d continued to hold a 39-percent limited_partnership_interest in hflp held the property contributed by d to hflp is includable in his gross_estate pursuant to sec_2036 i r c held further value of the assets to be included in the gross_estate determined -- - warren j kessler and joan b kessler for petitioner donna f herbert and jonathan h sloat for respondent memorandum findings_of_fact and opinion nims judge respondent determined as a primary position a federal estate_tax deficiency in the amount of dollar_figure with respect to the estate of morton b harper the estate in the alternative respondent determined a federal estate_tax deficiency of dollar_figure and a federal gift_tax deficiency of dollar_figure for the calendar_period the principal issue for decision is the proper treatment for estate and gift_tax purposes of interests ina limited_partnership some of which were transferred by morton b harper decedent prior to his death and another of which was held by decedent at his death unless otherwise indicated all section references are to sections of the internal_revenue_code in effect during the relevant periods and all rule references are to the tax_court rules_of_practice and procedure findings_of_fact some of the facts have been stipulated and are so found the stipulations of the parties with accompanying exhibits are incorporated herein by this reference decedent was a resident of palm springs california when he died testate in portland oregon on date no probate proceeding was ever filed by or on behalf of the estate decedent is survived by his two children michael a harper michael and lynn h factor lynn decedent’s wife ruth harper died in michael serves as executor of the estate and provided a mailing address in lake oswego oregon at the time the petition in this case was filed decedent was born on date in cincinnati ohio he later attended law school graduating in and began practicing law in chicago his practice initially specialized in corporate and political law and subsequently expanded to include bankruptcy tax real_estate and wills and trusts law after world war ii decedent and his family moved to california where decedent continued his legal practice focusing in particular on the entertainment industry decedent was a member of the california bar from until his death decedent was diagnosed with prostate cancer in and with cancer of the rectum in on date decedent created a revocable_living_trust entitled the morton b harper trust the trust the trust instrument designated decedent as the original trustee and as the initial primary beneficiary the document further provided during the lifetime of the trustor the trustee in trustee’s sole discretion may pay or apply the net_income and or corpus or so much as trustee chooses to or for the benefit of the q4e- trustor michael and lynn were named as successor trustees and were to receive the trust assets upon decedent’s death with percent thereof being distributed to lynn and percent to michael the percentages were based on perceived need michael has pursued a successful career in business as a real_estate_professional while lynn has been less consistent in fiscal matters at all relevant times lynn maintained a residence in hawaii on date a complaint was filed by the association of apartment owners of international colony club aoao against lynn in the circuit_court of the second circuit state of hawaii lynn owned a home within the international colony club condominium project and the aoao was the condominium association overseeing that project the complaint alleged that lynn had engaged in unauthorized and illegal construction and renovation of her property and requested both injunctive and monetary relief subsequently in november of the aoao demanded arbitration of its claims an arbitration award was then entered against lynn in december of and required extensive reconstruction work as well as payment of fees costs and expenses lynn and michael testified that following entry of the above award lynn told michael about her litigation versus the aoao and the concomitant award which michael then communicated to - decedent thereafter in approximately february of michael and decedent met in california with john g coulter jr an experienced real_estate developer familiar with the hawaii market michael had previously contacted mr coulter asking him to review documents relating to the hawaii lawsuit and to offer his advice after reviewing the documents and speaking to a gentleman involved in management of the condominium mr coulter expressed his concern that lynn had gotten herself into deep water that is into a situation where if she takes additional steps which could injure her further her loss could go beyond the judgment he also recommended that they evaluate her legal counsel and suggested that they get involved with her in the management of her assets through a_trust or some other form of involvement several weeks after the meeting michael accompanied mr coulter to hawaii for the purpose of being introduced to other potential representatives for lynn on date the attorney who had represented lynn in the aoao proceeding filed a complaint against her alleging unpaid legal fees in the amount of dollar_figure at a time not entirely clear from the record decedent made the decision to form a limited_partnership and to contribute thereto the majority of his assets an agreement of limited_partnership for harper financial company l p hflp was prepared and sets forth the governing provisions for the entity -- - the document begins with language stating that the agreement was made as of the lst day of january but later recites that the partnership shall commence its existence upon the date a certificate of limited_partnership is duly filed with the california secretary of state the primary purpose for hflp’s formation according to the agreement was as follows the acquisition including by purchase of sale of management of holding investing in and reinvesting in stocks both common and preferred options with respect thereto bonds mutual funds debt instruments money market funds notes and deeds of trust and similar instruments and investments the portfolio michael and lynn were named as the general partners of hflp and the trust as the sole limited_partner with interests of percent percent and percent respectively michael was also designated to serve as the managing general_partner as regards his authority the agreement provides subject_to the provisions of paragraph the managing general_partner shall have the full exclusive and complete authority and discretion in the management and control of the business of the partnership for the purposes stated herein and shall have the right to make any and all decisions affecting the business of the partnership subject_to the provisions of this agreement the managing general_partner shall have full and exclusive authority with respect to the portfolio including rights of sale reinvesting and voting the referenced paragraph then specifies the following limitations notwithstanding the provisions of this paragraph neither general_partner shall have any right power or authority to - jj - a do any act in contravention of this agreement without first obtaining the written consent thereto of a majority in interest of the limited partners defined as limited partners holding more than percent of the interest in the ordinary_income of the partnership held by limited partners b do any act which would i make it impossible to carry on the ordinary business of the partnership or change the nature of the partnership’s business without first obtaining the written consent thereto of a majority in interest of the limited partners c confess a judgment against the partnership without first obtaining the written consent thereto of a majority in interest of the limited partners d possess partnership property or assign the partnership’s right in such property for other than a partnership purpose without first obtaining the written consent thereto of a majority in interest of the limited partners e admit a person as a limited_partner otherwise than as permitted by this agreement without first obtaining the written consent thereto of a majority in interest of the limited partners f elect to dissolve and wind up the partnership without first obtaining the written consent thereto of a majority in interest of the limited partners g sell or reinvest or more of the portfolio based on their fair_market_value ina single transaction or ina related series of transactions other than in the ordinary course of business without first obtaining the written consent thereto of a majority in interest of the limited partners h issue or sell new interests in the partnership or admit new partners in connection therewith or permit the contribution of new_capital to the partnership without first obtaining the written consent thereto of a majority in interest of the limited partners enter into any transactions other than those transactions contemplated by paragraph in which a general_partner has an actual or potential conflict of interest with the trust or the partnership without first obtaining the written consent thereto of a majority in interest of the limited partners j admit a person as a general_partner without first obtaining the written consent thereto and to any related transactions with such person of a majority in interest of the limited partners kk amend this agreement without first obtaining the written consent thereto of a majority in interest of the limited partners in addition paragraph provides explicitly that the trust is entitled to vote prior to any such action being taken to approve any of the above-enumerated actions regarding capital accounts and contributions the agreement states that capital accounts were to be established and maintained in accordance with sec_704 and the regulations promulgated pursuant thereto namely sec_1_704-1 iv income_tax regs in general paragraph of the document requires that profits and losses be allocated percent percent and percent to the capital accounts of lynn michael and the trust respectively the agreement also sets forth the following with respect to contributions concurrently with the execution of this agreement or as soon thereafter as is reasonably possible the trust shall make an initial capital --- - contribution to the partnership consisting of the portfolio the general partners shall have no obligation to make any contribution to the capital of the partnership although the portfolio is not defined in the agreement there appears to be no dispute between the parties that it consisted of securities held in a brokerage account at m l stern co inc securities held in a putnam investments account securities held in two franklin fund accounts big_number shares of rockefeller center properties inc and a dollar_figure note receivable from jack p marsh the parties value these assets at between dollar_figure and dollar_figure million rounded an amount representing approximately percent of decedent’s total assets the trust’s capital_account in hflp was credited with percent of the value of the property contributed decedent retained personally or through the trust his personal effects a checking account an automobile and his palm springs condominium as regards distributions paragraph of the agreement states subject_to all of the provisions of this agreement funds of the partnership from any source shall be distributed to the partners at such times and in such amounts as are determined in the sole and absolute discretion of the managing general_partner paragraph then goes on to recite funds of the partnership shall be distributed as follows -- - a first to any partner the amount then due on any advances loans to the entity b ordinary net_cash_flow revenues from dividends interest and other items of ordinary_income in excess of ordinary and necessary operating_expenses shall be distributed to lynn to michael and to the trust c extraordinary net_cash_flow revenues from capital_gains in excess of capital losses less consequent expenses shall be distributed to the partners with positive capital_account balances pro_rata to the extent thereof the agreement also specifies that no distribution of funds of the partnership shall be made until the allocations described in paragraph hereof regarding the allocation_of_profits_and_losses to the partners’ capital accounts have first been made the agreement prohibits transfer sale assignment or encumbrance of a limited_partnership_interest without the consent of all partners any transfer attempted in violation of this restriction is declared by the agreement to be null and void ab initio under provisions of the agreement the entity is to be dissolved upon the earlier of january the retirement withdrawal death or insanity of any general_partner or any other event or condition other than removal which results in a general partner’s ceasing to be a general_partner unless at the time there is at least one remaining general_partner to continue the business of the partnership and such remaining general_partner chooses to do so or ii all partners agree in writing within days thereof to continue the business and if necessary to the admission of one or more general partners an election to dissolve the partnership made in writing by the general partners and the limited partners or the failure to elect a successor general_partner within days after the removal of the last general_partner although the agreement contains no express provision regarding the removal of a general_partner it specifies that rights and duties of the partners are governed by the california revised limited_partnership act except to the extent the agreement states otherwise this act includes the following the limited partners shall have the right to vote on the removal of a general_partner and that action shall be effective without further action upon the vote or written consent of a majority in interest of all partners cal corp code sec f west the agreement was signed by decedent on behalf of the trust by michael and by lynn although the signatures are undated the document was executed by michael in may or june of lynn could not remember when she signed the agreement and did not read it prior to signing a certificate of limited_partnership was filed on behalf of hflp with the california secretary of state on date from june to date decedent was hospitalized in palm springs medical records prepared at that time contain the explanation set forth below this is one of multiple desert hospital admissions for this 85-year-old caucasian who is well known to have metastatic colonic carcinoma and prostatic carcinoma and admitted at the present time for poor oral intake poor fluid intake dehydration and for further rehydration close observation nutrition support etc after his release decedent went to oregon where he resided until his death he first stayed with michael for approximately a month and then moved into a nearby oregon retirement facility known as carmen oaks carmen oaks served independent individuals and was not a nursing center thereafter by a document entitled assignment of partnership_interest and amendment no to agreement of limited_partnership for harper financial company l p dated and made effective as of date the trust transferred to michael and lynn percent of the trust’s partnership_interest as a result michael and lynn became holders of and 36-percent limited_partnership interests respectively and were given corresponding percentages of the trust’s capital_account balance the limited_partnership interests held by michael and lynn were designated as class b limited_partnership_interest s and were entitled to percent of the income and loss of the entity with percent thereof going to michael and percent to lynn - - the amendment also reclassified the trust’s remaining percent limited_partnership_interest as a class a limited_partnership_interest which was entitled to percent of the entity’s income and losses and to a guaranteed_payment of annually of its capital_account balance on the effective date payable quarterly no later than twenty days after the close of any such calendar_quarter or sooner if cash_flow permits decedent as trustee of the trust michael and lynn signed the document on date decedent commenced the process of transferring the trust’s portfolio to the partnership which process continued for approximately the next months on date decedent executed as trustee an allonge endorsement assigning to hflp the trust’s interest in the marsh note a collateral_assignment of the trust’s interest in property securing the note was also signed on that date then on date a letter agreement confirming and or finalizing the transfer was executed by or on behalf of mr marsh the trust and hflp next a letter dated date was sent by decedent to m l stern co confirming instructions for the sale of all securities held in the trust’s account and the use of the proceeds for the immediate repurchase of the same securities for an account established on behalf of the partnership michael as managing general_partner completed the requisite form opening a new account with m l stern co for the partnership the form designated michael as the individual authorized to enter orders on behalf of customer neil hattem served as decedent’s broker and subsequently as the broker on the hflp account letters dated date were then sent by decedent to putnam investor services and to franklin templeton requesting transfer of the respective putnam and franklin fund accounts to hflp lastly by a letter dated date decedent requested transfer of the trust’s stock in rockefeller center properties to the partnership during this period on date michael opened a checking account at bank of america in the name of the partnership with a dollar_figure deposit thereafter the first activity in the account other than the debiting of a monthly service charge was a deposit on date of dollar_figure representing interest_paid on the marsh note the check register maintained by michael in conjunction with his explanatory testimony reflects checks written for the benefit of hflp partners in and as follows date lynn dollar_figure big_number big_number big_number big_number michael trust dollar_figure big_number dollar_figure big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number big_number description and or purpose reimbursement of contribution to checking account opening deposit reimbursement of contribution to checking account opening deposit distribution distribution distribution distribution distribution distribution distribution distribution distribution additional distribution to cover tax voucher additional distribution to complete gift return_of_capital for an estate expense return_of_capital for an estate purpose capital return for an estate expense return_of_capital to cover estate_taxes distribution distribution -- - the funds to make the dollar_figure payment on date were obtained through two deposit transactions proceeds in the amount of dollar_figure from the liquidation of a money market account with m l stern co and in the amount of dollar_figure from a reduction in principal on the marsh note were placed into the bank account on date michael negotiated the dollar_figure payment on the marsh note in return for agreeing to extend the maturity_date of the remaining principal balance prior to establishment of the partnership account amounts received with respect to securities contributed to hflp were deposited in the morton b harper trust checking account in january of decedent entered hospice care in oregon preceding that time he had been hospitalized on three occasions in late september early october and late november he had also renewed his vehicle registration on date and his driver’s license was current at the time of his death decedent passed away on date thereafter in march or april of michael engaged a certified_public_accountant david s blankstein to prepare financial books and tax returns for the partnership and also to prepare the income gift and estate_tax returns due with respect to decedent in furtherance of these objectives mr blankstein reviewed the partnership_agreement the certificate of limited_partnership the amendment checking account records for the partnership the trust and decedent m l stern co statements for the partnership and the trust putnam investments statements for the partnership and the trust franklin funds statements for the partnership and the trust the rockefeller center properties stock certificate and the marsh note mr blankstein set up a general ledger for hflp to categorize and account for all transactions affecting partnership assets and income beginning date capital accounts were established for each partner as well as ledger accounts to show distributions to partners income received by the partnership on the various portfolio assets proceeds from the sale of securities and costs and charges incurred in addition an account labeled receivable from trust was created primarily to reflect amounts received by the trust after date that should properly have been received by the partnership this account was presumably necessitated in large part by the delay in transferring title to the portfolio securities and in opening the partnership bank account the balance in this account was then treated as a distribution to the trust no funds were actually transmitted between the two entities mr blankstein also conceded that several items which should have been attributed to the partnership were omitted a form_709 united_states gift and generation-skipping_transfer_tax return and a form_706 united_states estate and - - generation-skipping_transfer_tax return were filed on behalf of decedent and were received by the internal_revenue_service on date and date respectively the gift_tax_return reported the 4-percent general and 24-percent limited_partnership interests given to michael and the 6-percent general and 36-percent limited_partnership interests given to lynn the estate_tax_return included as part of decedent’s gross_estate the trust’s 39-percent limited_partnership_interest in hflp notices of deficiency were issued with respect to the above returns on date as previously stated respondent therein advanced a primary and an alternative position under the primary position the full value of the assets held by hflp was included in decedent’s gross_estate and prior taxable_gifts were reduced to dollar_figure resulting in an estate_tax deficiency of dollar_figure and no deficiency in gift_tax under the alternative position respondent determined an estate_tax deficiency of dollar_figure and a gift_tax deficiency of dollar_figure opinion i contentions of the parties the parties in this case disagree regarding how properly to treat the partnership interests transferred by decedent to his children during life and the interest included through the trust in his estate at death respondent contends that the full fair_market_value of the assets contributed to hflp is includable in decedent’s gross_estate upon either of two alternative theories respondent argues that the partnership lacked economic_substance and should thus be disregarded for transfer_tax purposes or alternatively that sec_2036 applies to include the value of the contributed_property in decedent’s gross_estate due to decedent’s retention of the economic benefit of the assets furthermore respondent maintains that even if the partnership is respected and sec_2036 is found not to apply the discounts claimed by the estate with respect to valuation of the subject partnership interests are excessive unsupported and should not be sustained respondent offers and relies upon the expert reports of john a thomson in connection with this latter argument conversely the estate emphasizes that hflp was a duly organized and operating limited_partnership established with the business_purpose of protecting from lynn’s creditors the assets that lynn would receive or inherit from decedent hence according to the estate the partnership must be recognized for tax purposes moreover it is the estate’s position that sec_2036 has no application here because the trust unconditionally transferred the portfolio assets to hflp the trust received adequate_and_full_consideration for the transfer in the form of a credit to its capital_account and there existed no express or implied agreement that decedent would retain a right to control - - over or income generated by the contributed_property the estate thus contends that this controversy devolves to a valuation case where the property to be valued takes the form of partnership interests in hflp and where the analysis provided by the estate’s expert clint cronkite establishes a sound appraisal thereof il evidentiary issues as a preliminary matter we address several evidentiary objections reserved by the parties in the stipulation of facts the estate objected to the admission of exhibit 27-j on grounds of authenticity relevance and prejudice exhibit 27-j is a facsimile of medical records for decedent requested by and sent to the internal_revenue_service the estate pointed out at trial that the lines within the document for the doctor’s signature are blank during the proceeding respondent offered as exhibit 53-r signed copies of key portions of the records the estate agreed that no objection would be pressed as to the authenticity of exhibit 53-r at which time the document was admitted into evidence with the estate renewing objections as to relevance and prejudice given this posture exhibit 27-j is largely cumulative and we sustain the estate’s objection thereto we also overrule any remaining objections to exhibit 53-r the estate similarly objected to exhibit 28-j on grounds of authenticity relevance and prejudice this document is a letter to the internal_revenue_service from one of decedent’s --- - physicians and the estate again cites concerns with the signature thereon in light of these concerns and the fact that the letter does not appreciably add to the information reported in the admitted medical records we sustain the estate’s objection the estate’s final objection in the stipulation was to the admission of exhibit 29-j a letter to michael from decedent’s doctor on grounds of relevance and prejudice these objections however were overruled at trial and the document was taken into evidence respondent in the stipulation objected to the admission of exhibits 33-j through 37-j which pertain to the hawaii arbitration on the ground of relevance on reply brief respondent expressly waived objection to these documents exhibits 33-j through 37-j are admitted into evidence respondent also in the stipulation raised relevancy objections to exhibits 41-j 44-j and 45-j since these documents a photo of decedent taken in the 1950s and copies of various checks written for gifts and charitable_contributions all relate to periods prior to those at issue and do not bear in any meaningful way on matters considered herein we sustain respondent’s objections -- - til inclusion in the gross estate--- sec_2036 a general rules as a general_rule sec_2501 imposes a tax for each calendar_year on the transfer of property by gift by any taxpayer and sec_2511 further clarifies that such tax shall apply whether the transfer is in trust or otherwise whether the gift is direct or indirect and whether the property is real or personal tangible or intangible for purposes of determining whether a gift has been made sec_2512 b provides where property is transferred for less than an adequate_and_full_consideration in money or money’s worth then the amount by which the value of the property exceeded the value of the consideration shall be deemed a gift the tax is then computed based upon the statutorily defined taxable_gifts which term is explicated in sec_2503 sec_2503 states generally that taxable_gifts means the total_amount_of_gifts made during the calendar_year less specified deductions similarly 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 such taxable_estate in turn is defined as the value of the gross_estate less applicable deductions sec_2051 sec_2031 a - - specifies that the gross_estate comprises all property real or personal tangible or intangible wherever situated to the extent provided in sec_2033 through sec_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 sec_2034 through then explicitly mandate inclusion of several more narrowly defined classes of assets among these specific sections is sec_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-- the possession or enjoyment of or the right to the income from the property or 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 likewise explain that the gross_estate under sec_2036 includes the value of transferred property if the decedent -- - retained the use possession right to the income or other enjoyment of the transferred property sec_20_2036-1 bstate tax regs 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 762_f2d_1361 9th cir quoting 395_us_316 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 437_f2d_1148 4th cir as used in sec_2036 the term enjoyment has been described as synonymous with substantial present economic benefit 265_f2d_667 3d cir affg 29_tc_1179 see also 114_tc_144 moreover possession or enjoyment of transferred property is retained for purposes of sec_2036 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 3_f3d_591 2d cir affg t cc guynn v united_states supra pincite estate of reichardt v commissioner supra pincite 73_tc_82 regulations likewise provide 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 estate_tax regs 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 pincite estate of rapelje v commissioner supra pincite however an exception to the treatment mandated by sec_2036 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 retained enjoyment has rested on the estate and this burden has often been characterized as particularly onerous in intrafamily situations estate of maxwell v commissioner supra pincite estate of reichardt v commissioner supra pincite estate of rapelje v commissioner supra pincite - - with respect to the case at bar however respondent conceded on reply brief that the opposite burden applies here the estate had asserted on opening brief that the burden_of_proof regarding nonvaluation issues shifted to respondent to which contention respondent replied as follows the respondent agrees that the lack of economic_substance and sec_2036 issues are new matters within the meaning of tax_court rule a as such the petitioner correctly states that the respondent bears the burden_of_proof on these issues under shea v commissioner t cc fn ref omitted for purposes of this litigation we have accepted respondent’s concession and have considered its role in our analysis nonetheless after reviewing all of the evidence presented we have found that our resolution does not depend on which party bears the burden_of_proof both parties adduced testimony and offered exhibits in support of their respective positions and the evidence so introduced was not evenly balanced in favor of the competing alternatives accordingly we have based our conclusions upon the preponderance_of_the_evidence rather than upon an allocation of the burden_of_proof c existence of a retained_interest as previously indicated sec_2036 mandates inclusion in the gross_estate of transferred property with respect to which the decedent retained by express or implied agreement possession control enjoyment or the right to income the -- p7 - focus here is on whether there existed an implicit agreement that decedent would retain control or enjoyment i e economic benefit of the assets he transferred to hflp respondent avers that sec_2036’s applicability is established on these facts emphasizing in particular actual conduct with respect to partnership funds respondent further maintains that this case is indistinguishable from the situations presented in estate of reichardt v commissioner supra and estate of schauerhamer v commissioner tcmemo_1997_242 the estate on the other hand discounts the evidence and cases relied on by respondent emphasizing instead the formal terms of the partnership arrangement and the accounting treatment of entity assets in estate of reichardt v commissioner supra pincite the decedent formed a family limited_partnership the general_partner of which was a revocable_trust created on the same date the decedent and his two children were named as cotrustees but only the decedent performed any meaningful functions as trustee id pincite he was the only trustee to sign the articles of limited_partnership to open brokerage accounts or to sign partnership checks id pincite he transferred his residence and all of his other_property except for his car personal effects and a small amount of cash in his checking account to the partnership and subsequently gave his two children limited - - partnership interests id pincite the decedent deposited partnership income in his personal account used the partnership checking account as his personal account and lived at his residence without paying rent to the partnership id pincite based on these facts we concluded that nothing but legal_title changed in the decedent’s relationship to his assets after he transferred them to the partnership id pincite in estate of schauerhamer v commissioner supra the decedent formed three limited_partnerships the decedent and one of her three children were named as the general partners of each partnership with the decedent’s being designated as the managing partner id the decedent transferred business_assets including real_estate partnership interests and notes receivable to the partnerships in undivided one-third shares id limited_partnership interests in these entities were given to family members id partnership bank accounts were opened but the decedent deposited the income earned by the partnerships into the account she used as her personal checking account where it was commingled with funds from other sources id checks were then written from this account to pay both personal and partnership expenses id the decedent’s children later acknowledged at trial that formation of the partnerships was merely a way to enable the decedent to assign interests in the partnership assets to family members with the assets to be - managed by the decedent exactly as in the past id we therefore found the assets includable under sec_2036 id we agree with respondent that the circumstances before us bear many similarities to those in 114_tc_144 and estate of schauerhamer v commissioner supra and are convinced that a like result should obtain we focus particularly on the commingling of funds the history of disproportionate distributions and the testamentary characteristics of the arrangement in support of our conclusion that there existed an implied agreement that decedent would retain the economic benefit of the assets transferred to hflp as regards commingling of funds we note that this fact was one of the most heavily relied upon in both estate of reichardt v commissioner supra pincite and estate of schauerhamer v commissioner supra we find the disregard here for partnership form to be equally egregious the agreement specified all funds of the partnership shall be deposited in a separate bank account or accounts yet no such account was even opened for hflp until date more than months after the entity began its legal existence prior to that time partnership income was deposited in the trust’s account resulting in an unavoidable commingling of funds michael testified concerning this delay as follows inadvertently either my account or i failed to apply timely for any--an employee sic identification -- - number that is required before a checking account is open so i just made the determination that without a checking account and i wanted the flow of cash what we would do is use the morton b harper trust account as a holding account and then i instructed the accountant to properly credit and account for those funds this explanation however seems to beg the question had michael sought promptly upon hflp’s creation to establish a bank account he would have been immediately alerted to the need for an ein hence he either neglected to attempt opening and or using an account or allowed the lack of an ein to continue for several months after having been reminded of its necessity both reflect at best a less than orderly approach to the formal partnership structure so pressed by the estate moreover we find michael’s reliance on post mortem accounting manipulations to be especially unavailing michael and mr blankstein hflp’s accountant each testified that no moneys actually changed hands in connection with the adjustments in response to similar contentions in estate of reichardt v commissioner supra pincite we stated the yearend and post mortem adjusting entries made by hannah’s firm were a belated attempt to undo decedent’s commingling of partnership and personal accounts there is no evidence that the partnership or decedent transferred any funds to the other as a result of the adjusting entries after-the-fact paperwork by decedent’s c p a does not refute that decedent and his children had agreed that decedent could continue to use and control the property during his life fn ref omitted --- - here michael did not even hire mr blankstein until after decedent’s death strengthening the inference that the partners had little concern for establishing any precise demarcation between partnership and other funds during decedent’s life closely related to the delay in opening the partnership bank account and consequent commingling of income is the delay in formally transferring the underlying portfolio assets to hflp no attempt was made to begin the process of title transfer until date when decedent executed an allonge endorsement assigning the marsh note to hflp no action was taken with respect to any of the other_securities until september and when letters addressing transfer of the m l stern co putnam and franklin accounts were drafted and an account with m l stern co was opened on behalf of hflp a letter requesting transfer of the rockefeller center properties stock was not prepared until date when michael was asked on cross-examination to explain this delay between the effective date of the partnership and the formal transfer of assets into the entity he replied probably for different reasons some mechanical delays and who we’re dealing with but generally there was no rush to do it we were just doing it in an orderly fashion next in response to a further question asking why there was no rush he continued there was no rush i mean we were just handling the business - - in an orderly fashion there wasn’t any deadline or urgency to do it and get it done the following colloquy then ensued q now let’s talk for a moment about the income from the portfolio assets before the title to the assets was transferred to the partnership your father or his trust continued to receive the income from those assets isn’t that right a would you restate that i’m lost q okay at a certain point in time the assets were contributed to the partnership correct a yes q okay before that happened your father’s trust continued to receive the income from those assets correct a probably q well why isn’t it yes a well before he contributed it he was in control of that who else would get it i say probably hence we are again met with an example of indifference by those involved toward the formal structure of the partnership arrangement and as a corollary toward the degree of separation that the agreement facially purports to establish moreover until title to the assets was transferred to hflp decedent would not have forfeited the control_over the underlying securities that he through the trust possessed as legal holder thus at the time of the date creation of hflp and for some months following decedent’s trust retained title to the underlying assets and was issued the dividends and interest - - generated thereby in addition according to michael’s own testimony the partners were in no hurry to alter this state of affairs this speaks volumes concerning how little the partners understood to have changed in decedent’s relationship to his assets as a result of the entity’s formation turning to facts regarding distribution of partnership funds we find equally compelling indicia of an implied understanding or agreement that the partnership arrangement would not curtail decedent’s ability to enjoy the economic benefit of assets contributed to hflp in addition to the deemed distributions engendered by the commingling discussed above even the distributions made by michael from the partnership checking account are heavily weighted in favor of decedent the check register indicates that during the period extending from september of through early date partnership funds were distributed for the benefit of michael and lynn in the amounts of dollar_figure and dollar_figure respectively these distributions occurred on date date and date during that same time frame partnership checks totaling dollar_figure were remitted to the trust with the last being written on date only then did distributions to michael and lynn resume with checks drawn on date in the amounts of dollar_figure and dollar_figure respectively given this pattern we would be hard pressed to conclude other than that the - -- partnership arrangement did little to curtail the access of decedent or his estate to the economic benefit of the contributed_property similarly significant is the evidence that certain of the distributions to the trust were linked to a contemporaneous expense of decedent personally or of his estate these amounts variously labeled by michael additional distribution return_of_capital or capital return totaled dollar_figure and even included dollar_figure to enable decedent to complete a gift days before he died this evidence buttresses the inference that decedent and his estate had ready access to partnership cash when needed on the issue of distributions the estate repeatedly intones in mantralike fashion the managing general partner’s right to make distributions was unlimited and could be made ‘at such times and in such amounts as are determined in the sole and absolute discretion of the managing general_partner ’ once again however this point begs the question the more salient feature is not that michael did or did not have authority to make the distributions but that he frequently used his position to place partnership funds at the trust’s disposal in response to personal or estate needs no other partner was afforded the same luxury of additional distributions or capital returns -- - furthermore the fact that the contemporaneous check register labels various disbursements to the trust a return_of_capital regardless of whether such are proper under the agreement and or should be otherwise classified also supports the clear implication that michael understood decedent’s capital could and would be made available to him if necessary additionally michael even liguidated an m l stern co money market account and renegotiated the marsh note in order to obtain the requisite cash to enable the trust to pay decedent’s estate_taxes these facets in turn provide strong evidence of an implied agreement under which decedent did not divest himself economically of the contributed assets the estate also argues that the distributions to the trust were consistent with the guaranteed_payment obligation nonetheless without regard once again to the veracity of this allegation we find it of little import in our analysis the record supports a conclusion that in making the payments michael was motivated by concern not with meeting hflp’s guaranteed_payment obligation but rather with facilitating underlying partner expenditures michael testified as follows on this subject q did you regularly pay the guaranteed payments to your father during a payments were made yes q were they made regularly - - a i don’t know what you mean by regularly q were they made as provided for in the partnership_agreement a to the best of my ability yes q were you aware that the partnership_agreement called for them to be paid quarterly a not specifically no q you recall how often you made guaranteed payments to him a i took the approach that i would look at receivables and distributions were entirely within my control and if the dollars were sitting there i would possibly make distributions it could have been as often as monthly i don’t recall as i sit here q how did you compute the amount of the guaranteed payments a i don’t understand what do you mean how did i compute it q how did---how did you compute the amounts that you paid did you compute them i mean they were dollar_figure percent of the portfolio right a oh i don’t know if i did it-- q of the capital--i’m sorry i stand corrected the capital_account they were supposed to be dollar_figure percent of the capital_account a that’s my--that’s my understanding yes q did you make computations when you made those guaranteed payments a it seems to me i did yes o did you do them in writing a well i did them and then i asked the accountant to double-check me on all of them-- qo when a ---because i’m not an accountant q when did you ask him to double-check you on that a regularly the foregoing exchange solidifies our belief that moneys were not remitted to the trust in a calculated effort to comply with the 25-percent entitlement the vague nature of the testimony makes clear that the guaranteed_payment averments are nothing more than an attempted after-the-fact justification for michael’s actions in addition given that mr blankstein was not engaged until march or april of after decedent’s death his help was unavailable to michael for purposes of any of the or early distributions a circumstance which apparently did not deter michael from proceeding despite his admitted lack of accounting expertise there are also questions with regard to whether profit and loss allocations called for by the agreement should have been made prior to any distribution of funds in any event we are satisfied that respect for the agreement was not the catalyst for the disproportionate distributions made to the trust we are equally unimpressed by the estate’s references to the fiduciary capacity in which michael purportedly acted as managing general_partner the estate claims michael as the managing -- - general_partner is a fiduciary and must act on behalf of the partnership and all of its partners and cannot favor any one of them over any other of them he cannot make distributions to one partner without making distributions to all partners and did not do so the record on the other hand shows a consistent pattern of acting in response to particular needs of decedent or his estate we simply are unable to agree that michael was acting in these instances first and foremost for the good of hflp and not primarily as the son of his father lastly we focus on testamentary characteristics of the partnership arrangement according to the estate it is clear from the record that the organization of the partnership and the contribution by the trust of the portfolio to the partnership’s capital was not testamentary no part of such transaction was intended to be effective at the time of morton’s death the terms and conditions of the partnership_agreement and the funding of the portfolio were complete and unconditional and changed the relationship of the parties to the portfolio assets while we acknowledge that hflp did come into existence prior to decedent’s death and that some change ensued in the formal relationship of those involved to the assets we are satisfied that any practical effect during decedent’s life was minimal rather the partnership served primarily as an alternate vehicle through which decedent would provide for his children at his death -- -- as previously discussed decedent continued to be the principal economic beneficiary of the contributed_property after hflp’s creation the few minor distributions made to michael and lynn which tellingly ceased throughout the entire period that funds were being disbursed for final gifts and estate expenses hardly evidence a meaningful economic stake in the assets during decedent’s life michael’s technical control_over management and distributions is likewise of little import although there was testimony that michael reinvested proceeds of maturing bonds and he presumably collected interest and dividends_paid on securities held in hflp’s name these activities are more akin to passively administrating than to actively managing the contributed portfolio from the documents in the record it appears that the composition of the portfolio changed little prior to decedent’s death we also note that a significant percentage of the portfolio consisted of professionally managed bond funds given the above we place little weight on averments concerning change during decedent’s life in the partners’ relationships to the contributed_property in addition we believe that our conclusions in this regard are corroborated by the alleged reason advanced at trial and on brief for establishment of the partnership the estate contends -- - morton’s primary reason for transferring the portfolio to the partnership was to create an arrangement that would protect from lynn’s creditors the assets that lynn would receive or inherit from morton once morton learned of the arbitration award and its seriousness he knew that he needed to address his concerns about lynn’s handling of her finances ina different manner than that provided in the trust pursuant to article v of the trust agreement on morton’s death lynn’ sic share would be distributed to her outright following such distribution lynn would have the responsibility to manage her assets and lynn’s creditors could reach them without restriction or limitation this was unacceptable to morton therefore by placing michael in charge of the partnership and providing by gift and on morton’s death that all but a fraction of lynn’s interest would be held as a limited_partner morton addressed his concerns about lynn lynn’s creditors would be inhibited due to the legal limitations of collecting a judgment from a limited partner’s interest citations omitted the emphasis of this discussion is patently post mortem as opposed to inter_vivos hence not only the objective evidence concerning hflp’s history but also the subjective motivation underlying the entity’s creation support an inference that the arrangement was primarily testamentary in nature the objective record belies any significant predeath change particularly from the standpoint of economic benefit in the partners’ relationship to the assets likewise the subjective impetus prompting - al --- decedent to form hflp centered on what would happen to his property after death he wanted to protect what lynn would receive from him not what she currently possessed other facets of the entity’s establishment are similarly consistent with a testamentary arrangement in particular the largely unilateral nature of the formation the extent and type of the assets contributed thereto and decedent’s personal situation are indicative michael testified that decedent made all decisions regarding the creation and structure of the partnership during cross-examination he stated we really didn’t discuss anything he told me what he wanted to do and he explained why and i accepted the assignment later when asked why the guaranteed_payment clause was added to the hflp agreement michael replied the same reason every provision was put in the agreement specifically because that’s what he wanted such statements are far more consistent with a description of one man’s estate plan than with any sort of arm’s-- length transaction or joint enterprise between partners the fact that the contributed_property constituted the majority of decedent’s assets including nearly all of his investments is also not at odds with what one would expect to be the prime concern of an estate plan we additionally take note of decedent’s advanced age serious health conditions and experience as an attorney - -- in summary we are satisfied that hflp was created principally as an alternate testamentary vehicle to the trust taking this feature in light of all that is discussed above we conclude that decedent retained enjoyment of the contributed_property within the meaning of sec_2036 d existence of consideration having decided that decedent retained enjoyment of the transferred assets for purposes of sec_2036 we turn to the question 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 the estate contends the primary reason why i r c dollar_figure does not apply to petitioner is that the trust’s transfer of the portfolio to the partnership in exchange for a credit to its capital_account for of the fair_market_value of the portfolio assets and a interest in profits and losses is a bona_fide sale for an adequate_and_full_consideration in money or money’s worth we however disagree on the ground that the estate’s position fails to take into account significant aspects of the jurisprudence addressing this exclusionary language the phrase as used in a predecessor statute was explained in early caselaw of this court as follows accordingly the exemption from tax is limited to those transfers of property where the transferor or donor has received benefit in full consideration in a genuine arm’s length transaction and the exemption is not to be allowed in a case where there is only contractual -- - consideration but not adequate_and_full_consideration in money or money’s worth 17_tc_495 it has similarly been stated in construing the bona_fide sale terminology the word ‘sale’ means an exchange resulting from a bargain 173_f2d_698 7o1l 2d cir the foregoing interpretations have subsequently been cited with approval in related contexts by both this and other federal courts see eg 526_f2d_1012 n 3d cir noting that the statutory basis for reguiring an arm’s length bargain would seem to be the requirement of a ‘bona fide’ contract 69_tc_408 observing that judicial decisions refer to a bona_fide contract as an arm’s-length transaction or a bargained-for exchange affd 625_f2d_133 6th cir 33_fedclaims_657 from the above language it can be inferred that applicability of the exception rests on two requirements a bona_fide sale meaning an arm’s-length transaction and adequate_and_full_consideration on the facts before us hflp’s formation at a minimum falls short of meeting the bona_fide sale requirement decedent independently of any other anticipated interest-holder determined how hflp was to be structured and operated decided - what property would be contributed to capitalize the entity and declared what interest the trust would receive therein he essentially stood on both sides of the transaction and conducted the partnership’s formation in absence of any bargaining or negotiating whatsoever it would be an oxymoron to say that one can engage in an arm’s-length transaction with oneself and we simply are unable to find any other independent party involved in the creation of hflp furthermore lack of a bona_fide sale aside we believe that to call what occurred here a transfer for consideration within the meaning of sec_2036 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 we see little practical difference in whether the trust held the property directly or as a 99-percent partner and entitled to a commensurate 99-percent share of profits in a partnership holding the property essentially the value of the partnership_interest the trust received derived solely from the assets the trust had just contributed 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 sec_2036 to a myriad of abuses engendered by unilateral paper transformations we note that the foregoing interpretation is supported by our holdings in both 114_tc_144 and by implication estate of schauerhamer v commissioner tcmemo_1997_242 in estate of reichardt v commissioner supra pincite the taxpayer contended that the parenthetical exception should apply we however rejected this argument observing that neither did the decedent’s children give anything to him or to the partnership at the time he contributed his assets nor did he sell the transferred property to the entity id in estate of schauerhamer v commissioner supra the contributed assets were included in the decedent’s gross_estate under sec_2036 without discussion of the exception leading to the inference that it would not apply in such circumstances we further are convinced that the cases cited by the estate do not require a contrary conclusion the estate points in particular to 116_tc_121 115_tc_478 115_tc_376 affd 283_f3d_1258 1l1ith cir estate of harrison v commissioner t c -- - memo and church v united_states aftr 2d ustc par big_number w d tex affd without published opinion 268_f3d_1063 5th cir the estate apparently argues that the just-cited cases establish that a proportionate partnership_interest constitutes per se adequate_and_full_consideration for contributed assets we believe however that any such global formulation would overreach what can be drawn from the decisions first with respect to estate of jones v commissioner supra estate of strangi v commissioner supra and shepherd v commissioner supra none of these opinions involved sec_2036 rather they considered whether gifts were made at the inception of family limited_partnership arrangements estate of jones v commissioner supra pincite estate of strangi v commissioner supra pincite shepherd v commissioner supra pincite the cases therefore do not control interpretation of the requirements of sec_2036 furthermore while sec_2512 b describes a gift as a transfer of property for less than an adequate_and_full_consideration in money or money’s worth there exists an equally fundamental principle that a gift requires a donee--some other individual must be enriched in this connection we note that estate of jones v commissioner supra pincite and estate of strangi v commissioner supra pincite which find no gift at inception say nothing explicit a7 - about adequate_and_full_consideration but do refer to enhancement or lack thereof of other partners’ interests hence even if relevant here we would be unable to conclude that these rulings resolve the question of whether a proportionate entity interest in and of itself constitutes adequate_and_full_consideration for contributed assets second although estate of harrison v commissioner supra and church v united_states supra do address sec_2036 there exist significant differences between these cases on the one hand and estate of reichardt v commissioner supra and estate of schauerhamer v commissioner supra on the other which distinguish the two groups in both estate of harrison v commissioner supra and church v united_states supra the other partners made contributions at the formation of the entity which were not de_minimis in nature the partnership entity thus served as the vehicle for a genuine pooling of interests the court in each case then went on to conclude that the partnerships had been created for a business_purpose estate of harrison v commissioner supra church v united_states supra accordingly it is not unreasonable to assume that a genuine pooling for business purposes injects something different into the adequate_and_full_consideration calculus than does mere unilateral value recycling as seen in estate of reichardt v commissioner supra estate of schauerhamer v commissioner -- - supra and the present matter in the former situation there is at least the potential that intangibles stemming from a pooling for joint enterprise might support a ruling of adequate_and_full_consideration we also note that sec_25_2512-8 gift_tax regs specifies that transfers made in the ordinary course of business a transaction which is bona_fide at arm’s length and free from any donative_intent will be considered as made for an adequate_and_full_consideration in money or money’s worth we therefore hold that where a transaction involves only the genre of value recycling described above and does not appear to be motivated primarily by legitimate business concerns no transfer for consideration within the meaning of sec_2036 has taken place hence the exception provided in that statute is inapplicable furthermore although sec_2043 can entitle taxpayers to an offset for partial consideration in cases where a transfer is otherwise subject_to sec_2036 this section too is inapplicable where as here there has been only a recycling of value and not a transfer for consideration eb conclusion we conclude that the property contributed by decedent to hflp is included in his gross_estate pursuant to sec_2036 we further note that given the foregoing conclusion we need not reach respondent’s additional argument for includability which argument is premised on disregard of the partnership for lack of --- - economic_substance a judicial doctrine likewise we need not address respondent’s contentions with respect to gift_tax liability as those determinations were made in the alternative to full inclusion based on either sec_2036 or the economic_substance_doctrine accordingly we now turn to valuation of the assets to be included in the gross_estate iv valuation a introduction and general rules given our resolution above the valuation inquiry with which we are concerned is the value on date decedent’s date of death of the property previously transferred by decedent to the partnership in other words we must ascertain the value of hflp’s underlying portfolio assets without regard to any claimed discounts attributable to the partnership form as used in transfer_tax statutes value denotes fair_market_value meaning the price at which the property would change hands between a willing buyer and a willing seller neither being under any compulsion to buy or to sell and both having reasonable knowledge of relevant facts sec_20_2031-1 estate_tax regs both parties submitted expert reports in support of their contentions regarding the fair_market_value of all property held by the partnership referred to as hflp’s net asset value clint -- - cronkite ca asa prepared reports on behalf of the estate ’ and john a thomson asa mai prepared reports on behalf of respondent we evaluate expert testimony in light of all evidence contained in the record and may accept or reject the proffered opinions in whole or in part according to our own judgement 304_us_282 shepherd v commissioner t c pincite in particular ‘the persuasiveness of an expert’s opinion depends largely upon the disclosed facts on which it is based ’ shepherd v commissioner supra pincite quoting 110_tc_530 the respective appraisals by mr cronkite and mr thomson of hflp’s net asset value are summarized below asset mr cronkite mr thomson cash dollar_figure dollar_figure marketable_securities big_number big_number m l stern co account california tax-free_income fund big_number big_number m l stern co account franklin age high income fund big_number big_number franklin california tax-free fund big_number big_number putnam american government income fund big_number big_number ' the report submitted on behalf of the estate valuing hflp as of date contains a certification signed by both mr cronkite and helena nam reich asa however because it is mr cronkite who testified at trial whom both parties refer to as petitioner’s expert and whose qualifications have been stipulated by the parties we adopt a similar convention of referring solely to mr cronkite -- - rockefeller center properties inc - big_number big_number common note receivable marsh note big_number net asset value dollar_figure dollar_figure as can be seen from the foregoing table the only difference reflected in the net asset value analyses of the parties’ experts lies in their valuation of the marsh note this level of agreement is logical in light of the fact that the remaining assets in addition to cash consisted of marketable_securities and mutual funds before proceeding to address the marsh note specifically however we deal with a question that has arisen concerning burden_of_proof b burden_of_proof the estate’s opening brief contains the statement that the only matter as to which petitioner bore the burden_of_proof was the determination of fair_market_value respondent’s opening brief refers to the estate’s failing to satisfy its burden but also includes the following remark even if respondent had the burden with respect to the valuation of the property the evidence produced by respondent clearly satisfies any such burden see 250_f3d_696 although one of the summary tables contained in mr thomson’s report states a value of dollar_figure for the franklin age high income fund the dollar_figure figure is used elsewhere in the report and is necessary to derive the oft-repeated total of dollar_figure we conclude that the dollar_figure amount should be disregarded as a transcription error - - 9th cir affg in part and vacating and remanding in part t c memo the estate’s reply brief then focuses on the foregoing citation to estate of mitchell v commissioner supra in arguing that respondent does in fact bear the burden_of_proof in this situation the court_of_appeals for the ninth circuit to which appeal in this case would normally lie has addressed the issue of burden_of_proof in valuation cases in a series of three recent decisions estate of mitchell v commissioner supra 249_f3d_1191 9th cir revg and remanding 112_tc_130 243_f3d_1145 9th cir revg and remanding estate of kaufman v commissioner tcmemo_1999_119 in each of these cases the commissioner determined an estate_tax deficiency based upon an increase in the fair_market_value over that claimed on the tax_return of shares in a closely_held_corporation estate of mitchell v commissioner supra pincite estate of simplot v commissioner supra pincite morrissey v commissioner supra pincite subsequently the commissioner submitted for trial expert reports opining and or the commissioner conceded that the value of the subject stock was less than that asserted in the statutory notice estate of mitchell v commissioner supra pincite estate of simplot v commissioner supra pincite4 morrissey v commissioner supra pincite confronting this scenario the -- - court_of_appeals in each instance indicated that the deviation in the commissioner’s litigation posture from the valuation stated in the notice resulted ina forfeiture of any presumption of correctness and or a placing of the burden_of_proof on the commissioner estate of mitchell v commissioner supra pincite estate of simplot v commissioner supra pincite morrissey v commissioner supra pincite9 under the rule_of 54_tc_742 affd 445_f2d_985 10th cir this court will follow a court_of_appeals decision which is squarely in point where appeal from our decision lies to that court_of_appeals we also acknowledge that the notice_of_deficiency issued with respect to decedent’s estate_tax placed a value of dollar_figure on decedent’s interest in the assets held by hflp while the expert report and posttrial briefs submitted by respondent advocate a value of dollar_figure nonetheless the record in this case is such that our conclusion would be the same regardless of any presumption of correctness or the falling of the burden_of_proof we therefore need not further probe the implications here of the above-described decisions by the court_of_appeals for the ninth circuit and shall base our ruling on the preponderance_of_the_evidence cc value of marsh note the subject note with principal_amount of dollar_figure was issued on date jack p marsh was the maker and the trust was the payee the original due_date was date and the original interest rate borne by the note was dollar_figure percent as of decedent’s date of death the note had been renewed annually for 1-year extensions the interest rate had been reduced to percent and payments of interest were current the marsh note was secured_by collateral in the form of a 45-percent interest in a dollar_figure million note which note in turn was secured_by a deed_of_trust on carson harbor village a mobile home park jack p marsh was the payee of the dollar_figure million note and beneficiary of the deed_of_trust and carson harbor village ltd was the payor and trustor carson harbor village ltd was a limited_partnership of which goldstein properties inc was the general_partner james f goldstein as president of goldstein properties signed the dollar_figure million note and related deed_of_trust on behalf of carson harbor village ltd i mr cronkite’s report mr cronkite at the outset of his report states the terms of the marsh note and indicates that it is secured_by a collateral interest in the aforementioned note secured_by deed_of_trust he continues in addition to this note there is a -- - first trust deed in the amount of approximately dollar_figure-dollar_figure million in estimating the fair_market_value of the marsh note mr cronkite utilized two approaches an income approach discounting future_interest income to present_value at its required yield and a market approach discussing the loan with mr marsh an alleged secondary loans expert with respect to the income approach mr cronkite explained that the higher the inherent risk in an income stream the higher the required yield to be used in computing present_value the portion of his report concerning selection of the required yield to be employed here reads the appropriate yield for an investment in this note was estimated based on a review of the date note secured_by deed_of_trust which stipulates that in the event of default the unpaid amounts will bear interest at the contract rate plu sec_5 per annum we concluded that was an appropriate yield on this basis this 15-percent rate is then used in conjunction with a present_value formula to produce a dollar_figure fair_market_value for the subject note the section of mr cronkite’s report addressing the market approach references discussions with mr marsh and then sets forth the following according to mr marsh the dollar_figure loan was intended to be interim financing only harbor village intended to refinance its property but encountered environmental issues -- - although the loan is current mr marsh estimates that he could only get dollar_figure to dollar_figure on the dollar for a interest and perhaps dollar_figure to dollar_figure for a interest due to liquidity factors based on the above we conclude that the fair_market_value of the marsh note is dollar_figure approximately of dollar_figure ii mr thomson’s report mr thomson in his report preceded valuation of the marsh note with a discussion of certain factual assumptions underlying his analysis the report refers to the dollar_figure million note as eguating to more than to coverage for the marsh note and mentions personal guaranties by mr marsh and mr goldstein mr thomson also addresses several items relating to the security for the dollar_figure million note namely the value of the mobile home park the existence of any prior liens against the park and possible environmental issues pertaining to the park mr thomson appraised the 410-unit mobile home park and concluded that it could command a price of dollar_figure to dollar_figure per unit or dollar_figure to dollar_figure million based on other mobile home park sales we are familiar with in southern california as regards potential prior liens the report states we reguested any other trust deeds notes if any against the carson harbor village mobile home park which may have a senior position to the dollar_figure deed_of_trust however we were not provided any data on this request from the taxpayor sic we did obtain a property profile from chicago title which showed no recorded liens as of the appraisal date - concerning environmental issues mr thomson reviewed park environmental corporation’s environmental analysis dated date and requested but was not provided sections of a remedial action plan dated date outlining procedures for removal and disposal of waste material cleanup was ultimately assumed to require minimal cost in comparison to the overall property value such that it would not significantly influence refinancing or sale in then determining whether the marsh note should be valued at a discount to its face value mr thomson weighed five factors these were the collateral securing the note the existence of guaranties relating to the note and its collateral the interest rate on the note previously granted extensions of the note’s maturity_date and the currency of payments and environmental concerns related to the collateral mr thomson concluded that of the foregoing factors the first three enumerated would tend to support no discount or a slight premium while the latter two would tend to support a discount more specifically mr thomson opined that the following facts would tend to decrease any applicable discount the marsh note possessed good collateral coverage in that it was secured_by a dollar_figure million note which in turn was secured_by a deed_of_trust on a well-located mobile home park and the dollar_figure -- - note was personally guaranteed by mr marsh and the dollar_figure million note was personally guaranteed by mr goldstein neither increasing nor decreasing any applicable discount was the fact that the interest rate pincite percent was a reasonable basis points over the conventional mortgage rate of dollar_figure percent for the week ended date identified as tending to increase any applicable discount were facts indicating the note had been extended several times such that there could be no assurance it would be paid in full at the upcoming maturity_date without legal action although all interest payments were current and there could be environmental concerns relative to a small section of the mobile home property which could delay the refinancing and or sale of the property after setting forth the above factors mr thomson’s report concludes in our opinion based on our experience with real_property and promissory notes we believe a range of to percent discount would be applicable to the subject dollar_figure note therefore based on the factors considered and the note itself it is our opinion that a discount of percent is reasonable to apply to the dollar_figure note in hfcl p as of date accordingly we have estimated the fair_market_value of the dollar_figure note in hfcl p at dollar_figure or dollar_figure x iii analysis in our comparison of the foregoing views we generally found those of mr thomson to be better explained better supported and more convincing while we conclude that certain factual assumptions described in mr thomson’s report were not established by a preponderance_of_the_evidence the level of detail in the report’s treatment of individual factors considered enabled us to make adjustments within what was a reasonable framework in contrast mr cronkite’s report was highly conclusory and revealed little about the underlying analysis as a result we could neither perform any meaningful evaluation nor ascertain that the conclusions were supported by an appropriate foundation we therefore found mr cronkite’s report unpersuasive and of minimal assistance in the valuation endeavor accordingly we sustain respondent’s position to the extent of the reduced valuation amount discussed below for the marsh note mr cronkite’s approaches we begin by addressing the difficulties encountered with mr cronkite’s approaches as previously mentioned mr cronkite included in his report an income approach discounting interest_income pincite percent although the report explains that the required yield should reflect inherent risk in the income stream it fails to offer any satisfactory link between this premise and the chosen 15-percent rate mr cronkite apparently added the 5-percent default -- - increase specified in the dollar_figure million note to the 10-percent contract rate of the dollar_figure note why the default provisions negotiated with a different debtor nearly years earlier accurately reflect the inherent risk in the marsh note as of decedent’s date of death is not elucidated we are afforded no information on relative conditions and circumstances that would facilitate a useful comparison it is for these reasons that we were unable to give mr cronkite’s income approach any significant weight in our analysis in addition we observe that mr cronkite testified at trial to having relied primarily on the market approach in his valuation as regards mr cronkite’s market approach our concerns in many respects parallel those highlighted above in connection with the income approach again the report is cursory conclusory and reveals little underlying reasoning that would enable us to evaluate the result reached the report sets forth value estimates made by mr marsh and characterizes mr marsh as a secondary loans expert mr cronkite explained at trial only that mr marsh represented to me that he was an expert in the secondary loan market when questioned regarding mr marsh’s although the estate on brief refers to percent as the default rate under the marsh note and respondent similarly characterize sec_15 percent as the default rate on the note the copy of the marsh note itself in the record does not contain any provisions regarding a default rate rather the dollar_figure million note which bears a contract rate of dollar_figure percent specifies a default rate of the contract rate plu sec_5 percent -- - role in the valuation mr cronkite testified i relied primarily on an expert in the field to establish what the fair_market_value of the note was i did some checking on that for reasonableness determined that his analysis was reasonable mr cronkite also answered in the affirmative to an inquiry asking so then you essentially took your value of the note from mr marsh or based a good part of your conclusions on mr marsh’s own opinion we however know almost nothing about the gualifications of mr marsh beyond the fact that he was involved in lending the dollar_figure million to carson harbor village ltd and was payee of the note for that amount and beneficiary of the related deed_of_trust we are equally uninformed about the nature of the discussions that led to his appraisal to wit we are unaware of whether the figures were merely an offhand estimate or followed a period for study or evaluation mr marsh did not appear or testify at trial accordingly we are asked to accept his opinions as reported by mr cronkite without any opportunity to probe their foundation or any assurances that he was qualified to render them we also note that his independence for purposes of offering a neutral opinion is not free from doubt furthermore although mr cronkite stated that he checked mr marsh’s analysis for reasonableness he gave no indication whatsoever of the -- - materials or information that figured in such corroboration his assertions therefore can do little to increase our confidence another difficulty we have with the valuation produced by mr cronkite’s market approach is the lack of explanation concerning the factors taken into account in arriving at the discount environmental issues are mentioned and mr cronkite testified that this factor was very important to mr marsh when asked what studies he reviewed in making a conclusion as to the environmental problem mr cronkite responded you know i don’t--i don’t recall actual studies i believe i had a lot of correspondence regarding the environmental issues my discussion with mr marsh--he was certainly well aware of them the fact that they couldn’t get you know refinancing due to the environmental concerns was an issue but my understanding was there was no dollar amount you know put on this this liability these remarks and the reference to environmental issues in the report fall short not only of assuring us that mr cronkite had a reliable foundation for his understanding of the seriousness of the environmental problem but also of permitting us to assess the role it played relative to any other factors we therefore are unable to accept portions of the analysis while making adjustments in other aspects that we might find unsupported by the evidence nor can we usefully compare components as between the two experts we are placed ina position of having largely to embrace or reject mr cronkite’s -- - conclusions in wholesale fashion as a consequence mr cronkite’s market approach too offers only a modicum of guidance in valuing the subject note mr thomson’s approach we now address mr thomson’s approach which weighed five factors in arriving at a 10-percent discount for the marsh note we deal with each of these components seriatim beginning with the factor addressing collateral coverage mr thomson opined that collateral coverage on the marsh note was good and cited both the dollar_figure million note secured_by deed_of_trust and the underlying mobile home park in support of this assertion the estate raises several points in response to mr thomson’s position on coverage one of which involves the existence of a senior lien on the mobile home park as previously mentioned mr cronkite’s report references a first trust deed in the amount of dollar_figure to dollar_figure million mr cronkite testified at trial that this statement was based on his discussion with mr marsh and that he had seen no documents related to the encumbrance we pause here to note that the estate attempted at trial to introduce public records from the los angeles county recorder’s office relating to the alleged first lien respondent’s objection to these documents was sustained on the grounds that the information was requested from the estate during discovery was not provided and should have been stipulated and or - -- exchanged prior to trial in accordance with rule and this court’s standing pre-trial order presumably mr thomson was unaware of these documents when formulating his expert opinion since he makes no mention of them the court deemed the consequent surprise significant in these circumstances the estate then sought by requests and motions filed after trial to have judicial_notice taken of the documents such submissions were denied as an improper attempt to augment the closed record without the concurrence of the opposing party mr thomson relied on a property profile from chicago title showing no prior liens but this document has not been made a part of the record the record also leaves unclear the extent to which the property profile would have contained historical data reflecting encumbrances as of date as a result we are not satisfied that either expert relied on adequate information in developing his opinion however even if we were to hypothesize the existence of a first lien we do not believe that mr thomson’s more general reliance in valuing the marsh note on good collateral coverage would be appreciably weakened because mr thomson appraised the mobile home park at dollar_figure to dollar_figure million generous coverage would not cease to exist merely on account of a first trust deed in the dollar_figure- to dollar_figure-million range -- - furthermore the record contains no materials that undermine the value placed by mr thomson on the park prior to consideration of environmental issues or offer an alternative figure mr cronkite did not inspect the mobile home park or perform a real_estate appraisal and his professional gualifications do not reveal any expertise in the real_estate area mr thomson on the other hand is a licensed real_estate appraiser and broker in the state of california he testified to having appraised mobile home parks we thus are confident that he would have been in a position to make an informed judgment about a general value range in comparison to other southern california mobile home park sales in addition the fact that the park was refinanced in after the year in issue for nearly dollar_figure million also lends a degree of credence to mr thomson’s numbers another point raised by the estate concerns references in mr thomson’s report to the coverage provided by the primary collateral the dollar_figure million note as more than to although the actual coverage is only to inasmuch as the marsh note was secured_by a 45-percent interest in the dollar_figure million note we again do not believe that this fact in and of itself eviscerates the basic premise of good coverage we are equally unconvinced that any of the various other contentions made by the estate on brief render unreasonable the conclusion that the marsh -- - note was well covered by collateral hence while we acknowledge that the level of coverage was not as great as mr thomson may have assumed we remain satisfied that good coverage could appropriately be considered as a positive factor enhancing the value of the subject note we next address the factor involving personal guaranties about which the parties express significant differences mr cronkite indicated at trial that he was not aware of any personal guaranties at the time he prepared his report while mr thomson took guaranties into account in his valuation the record contains no guaranty agreement or document relating to either the marsh note or the dollar_figure million note and the notes themselves bear no evidence of a guarantor instead guaranties are referred to in several items of correspondence which passed between mr marsh and either decedent or michael the first is an date letter from mr marsh to decedent this letter adverts to the new dollar_figure promissory note and concludes with the following paragraph i am proceeding with the closing of the dollar_figure loan to james goldstein that will be adequately secured_by a note secured_by deed_of_trust on real_property i of course will have all the necessary personal guarantees etc on same if for any reason whatsoever this loan does not close within the next fifteen days your funds will be returned to you upon demand plus interest from date if the loan closes morton b harper trustee of the morton b harper revocable_trust dated date will be assigned as collateral a interest - in the dollar_figure note your investment will also be personally guaranteed by myself along with the personal guarantee of james goldstein then in a second letter from mr marsh to decedent dated date mr marsh enumerates five enclosed documents the first four pertain to the dollar_figure million note and deed_of_trust the fifth item is personal guarantee dated date executed by jack p marsh later an date letter from michael to mr marsh advised that the trust’s interest in the marsh note had been assigned to the partnership and asks mr marsh to acknowledge his agreement that all preexisting assignments of the collateral note and deed_of_trust security and also your guarantee dated date remain in full force and effect for the benefit of hflp the date letter agreement between mr marsh and the trust then similarly declares that security for the dollar_figure investment funds is assigned to the partnership and that jack p marsh’s personal guarantee for the dollar_figure investment funds is still in effect and is transferred to hflp lastly a date letter from mr marsh to michael states that the dollar_figure note is personally guaranteed by jack p marsh and that the dollar_figure carson harbor village ltd note is personally guaranteed by james goldstein -- - in assessing the import of this documentary_evidence we must also be conscious of relevant provisions of state law cal civ code sec west defines guarantor for purpose of the statutes relating to rights and obligations which arise out of a guaranty relationship the distinction between sureties and guarantors is hereby abolished the terms and their derivatives wherever used in this code or in any other statute or law of this state now in force or hereafter enacted shall have the same meaning hereinafter in this section defined a surety or guarantor is one who promises to answer for the debt default or miscarriage of another or hypothecates property as security therefor against the foregoing backdrop we first consider the existence of any guaranty by mr marsh clearly mr marsh and the harpers were under the impression that mr marsh had executed a personal guaranty on date however to the extent that the purported guaranty existed and was of the dollar_figure note we conclude that it should be disregarded in the valuation process the dollar_figure note on its face is an unrestricted personal obligation of jack p marsh accordingly any personal guaranty thereof would fail to conform to the definition of a guaranty under california law would be no more than a redundant second promise to pay personally and would not appreciably enhance the value of the note furthermore to the extent that the context provided by certain of the above letters could support an inference that mr marsh’s alleged date -- - guaranty was actually of the dollar_figure million note the evidence is ambiguous and fails to establish such a guaranty by a preponderance concerning a possible guaranty of the dollar_figure million note by mr goldstein we again find the record insufficient to meet respondent’s burden while the date letter indicates prospectively that mr marsh intended to seek a guaranty from mr goldstein the absence of any reference to a goldstein guaranty in the date letter is conspicuous the date letter specifically enumerates documents pertaining to the dollar_figure million note as well as a personal guaranty by mr marsh the omission of any mention of a guaranty by mr goldstein could certainly imply that the anticipated assurance was not obtained the only other item which alludes to a goldstein guaranty is the date letter written nearly years later given this record we are not convinced that the latter document sufficiently overcomes the inference which can be drawn from the more contemporaneous letters in summary then we conclude that on the evidence before us personal guaranties should not be considered as a factor enhancing the value of the marsh note as regards the factor directed toward the interest rate on the note mr thomson found this element to be neutral mr thomson compared the 13-percent conventional mortgage rate for the week ended date as reported in the federal -- jo - reserve statistical release to the 10-percent rate born by the marsh note he concluded that the spread of basis points was reasonable mr cronkite indicated that he did not research interest rates the estate has offered no alternative evidence or position and we have no grounds for doubt of mr thomson’s assumptions on this matter turning to the two factors that mr thomson felt would increase any applicable discount we begin with that pertaining to maturity_date and extensions mr thomson indicated that given the repeated annual extensions of maturity there existed a lack of assurance that the note would be paid in full at its upcoming due_date he viewed this circumstance as one which would favor an increase in discount again the estate has not challenged the foregoing premise and we note mr cronkite testified with similar import mr cronkite stated whether there’s a pending maturity_date i think is kind of moot i believe everyone thought it wouldn’t--it wouldn’t be paid at the maturity_date we find mr thomson’s analysis of maturity issues to be logical the remaining factor identified by mr thomson as tending to support an increased discount focuses on environmental concerns both parties and their experts are in agreement insofar as the notion that environmental issues relating to the mobile home park detract from the value of the marsh note the estate however - 7jl1- places a far greater emphasis on this factor and alleges that mr thomson trivialized the seriousness of the carson harbor village property’s environmental condition mr cronkite as we have previously discussed offered generalized testimony portraying the environmental issues as very important to mr marsh but conceded that he had not reviewed any environmental studies in preparing his report he also cited the fact that refinancing for the property was not obtained until as an indication of the seriousness of the problem mr thomson reviewed an analysis by park environmental corporation and requested but was not provided portions of a study by mclaren hart addressing remedial action mr thomson testified that in reading the materials obtained he did not perceive any groundwater contamination but did see mentioned a surface tarlike substance which seemed to be confined to a relatively small to 30-foot area of the property mr thomson described his assessment of this information well as an investor wanting to buy that note i would be concerned about the environmental and that did--that’s what really generated our discount i would be concerned i didn’t think it was a big impact but it was an impact that was---could delay the - j2 - refinancing ina similar vein his report assumes a comparatively minimal cleanup cost but does recognize the factor as a contingency detracting from the value of the note on this record we believe that mr thomson has taken the better supported and more convincing position on environmental issues he reviewed objective materials and was able to offer specifics relating to the physical condition of the property mr cronkite relied almost exclusively on the generalized opinion of mr marsh while we understand that mr marsh was the beneficiary of the dollar_figure million note secured_by the park we are uninformed as to the nature extent or basis of his knowledge regarding the park’s environmental profile additionally although both sides acknowledge a delay in refinancing that could have been attributable to environmental problems we saw before us no evidence confirming the degree to which environmental concerns figured in financing negotiations we therefore conclude that mr thomson appropriately took environmental issues into account as one of several factors affecting value and was not compelled to give greater emphasis to this feature the foregoing evaluation thus results in a scenario comprising one factor tending to decrease and two tending to increase any applicable discount with the other two factors being either neutral or irrelevant mr thomson used these five factors to place the discount for the marsh note within a to -- - 15-percent range with two positive and two negative elements mr thompson appears to have selected the midpoint of the range or percent as to the range itself mr thomson’s report states that the numbers are based on our experience with real_property and promissory notes when asked at trial whether he was aware of any note transactions or published compilations of note transactions to use as comparables mr thomson responded specific transactions as a california real_estate broker i get information all the time i’m not specifically aware of any source that necessarily tracks---are you saying trust deeds counsel replies affirmatively i get brokers sending me stuff all the time but i don’t have anything specific to track them mr thomson also indicated that he could conceive of situations where discounts would be percent or greater as where a note was unsecured or bore a below-market interest rate mr cronkite’s report states mr marsh estimates that he could only get dollar_figure to dollar_figure on the dollar for a interest and perhaps dollar_figure to dollar_figure for a interest due to liquidity factors these remarks would seem to refer to discount ranges for interests in the dollar_figure million note mr cronkite thus apparently selected a discount for the marsh note based on what mr marsh estimate d he could perhaps get for sales of the dollar_figure million note yet mr cronkite at trial neither expounded - upon the basis for mr marsh’s ranges nor provided any exegesis for his derivation therefrom of a 33-percent discount for the marsh note faced with this limited record we observe that both sides’ treatments of discount ranges leave something to be desired in terms of support and explanation nonetheless we again are satisfied that mr thomson has submitted the more convincing position we know that he is a licensed real_estate broker and appraiser and his testimony tied the selected range to data regularly received from professionals in the real_estate brokerage field in contrast we reiterate that mr marsh’s alleged expertise in this area is not established by the record we additionally repeat our concern about the complete absence of information as to the underpinnings for his views we therefore accept mr thomson’s to 15-percent range within the above-stated range however we seek a discount reflective of one factor tending to decrease and two tending to increase the applicable figure rather than an even split of factors accordingly we conclude that percent or two-thirds of the spread from to percent rounded is an appropriate discount the fair_market_value of the marsh note is thus held - - to be dollar_figure dollar_figure x this results ina total value for the hflp assets to be included in decedent’s gross_estate under sec_2036 of dollar_figure to reflect the foregoing decision will be entered under rule