t c memo united_states tax_court estate of anna mirowski deceased ginat w mirowski and ariella rosengard personal_representatives petitioners v commissioner of internal revenue respondent docket no filed date albert h turkus bryon a christensen john p marston sidney j silver and brian l alpert for petitioners william j gregg j craig young and warren p simonsen for respondent memorandum findings_of_fact and opinion chiechi judge respondent determined a deficiency of dollar_figure in federal estate_tax estate_tax with respect to the estate of anna mirowski decedent’s estate the issues remaining for decision are whether any of the assets owned by mirowski family ventures l l c mfv are includible in the gross_estate of anna mirowski ms mirowski or decedent under sec_2036 a or a we hold that none of the assets owned by mfv is includible in decedent’s gross_estate under any of those sections findings_of_fact many of the facts have been stipulated and are so found ms mirowski was a resident of owings mills maryland at the time of her death on date ginat w mirowski ginat mirowski and ariella rosengard the personal representa- tives of decedent’s estate and two of decedent’s three daughters resided in carmel indiana and the united kingdom respectively at the time they filed the petition in this case ms mirowski who was born on date was the youngest of three daughters ms mirowski’s parents who were 1respondent determined a deficiency of dollar_figure in dece- dent’s federal gift_tax gift_tax for her taxable_year the parties settled all the gift_tax issues in this case 2unless otherwise indicated all section references are to the internal_revenue_code in effect on the date of ms mirowski’s death all rule references are to the tax_court rules of prac- tice and procedure 3ginat mirowski is the oldest of decedent’s daughters ariella rosengard is the next oldest daughter and doris frydman is the youngest daughter tailors in lyon france lyon owned a clothing shop where ms mirowski worked as a young girl eventually ms mirowski managed the family business and had responsibility for family investments until she moved to israel after she married mieczyslaw michel mirowski dr mirowski when dr mirowski who was born in poland was about years old germany invaded poland dr mirowski lost his family in the holocaust thereafter dr mirowski moved to france where he met and married ms mirowski they enjoyed a long happy and successful marriage while dr mirowski was living in france he attended medical school after medical school dr mirowski moved with ms mirowski to israel where he continued his medical training and specialized in cardiology while living in israel dr mirowski developed a close relationship with dr harry heller dr heller who was chief of medicine at the hospital where dr mirowski trained and who became a father figure to dr mirowski dr heller suffered from ventricular fibrillation at the time the only treatment available for that condition was elec- tric shock administered by a device known as a defibrillator so- called external defibrillator which because of its large size was located in the hospital despite his condition dr heller refused to stay constantly at the hospital close to a defibril- lator and passed away from an episode of ventricular fibrillation when he was not at the hospital dr mirowski was very upset by dr heller’s death he determined to develop an implantable defibrillator device in order to prevent people like dr heller who suffered from ventricular fibrillation from dying because they were not in a hospital near a defibrillator when they suffered an episode of that condition or from having to stay continuously in a hospital in order to be near a defibrillator in the event of such an episode in in order to obtain funding to develop an im- plantable defibrillator device dr mirowski and ms mirowski emigrated to the united_states initially dr mirowski was ostracized in the medical community for his efforts to develop such a device he nonetheless persevered over a ten-year period dr mirowski and a team of scientists developed an electronic device known as the automatic implantable cardioverter defibrillator icd to monitor and correct abnormal heart rhythms in the icd was successfully implanted for the first time in a human dr mirowski who eventually became chief of cardiology at sinai hospital in baltimore maryland baltimore and a profes- 4at the time of the trial in this case more than mil- lion patients worldwide had received icds the icd has been referred to as the greatest contribution to cardiology in the last century sor of medicine at johns hopkins university school of medicine in baltimore johns hopkins medical school held various patents relating to the icd icd patents dr mirowski entered into an exclusive license agreement with respect to the icd patents icd patents license agreement under which inter alia he had the right to receive approximately percent of the royalties paid for_the_use_of those patents during his lifetime dr mirowski received modest royalties under the icd patents license agree- ment some time after dr mirowski and ms mirowski emigrated to the united_states they and their family started the general practice of taking an annual one-week summer vacation in rehoboth beach delaware rehoboth beach that practice continued after ms mirowski’s daughters married and had families of their own when the mirowski family was vacationing in rehoboth beach they took the opportunity to have annual meetings mirowski family annual meetings at which they frequently discussed family business and investment matters at times accountants or attorneys were invited to attend those meetings in it was determined that ms mirowski had diabetes and she became the patient of dr charles angell an assistant professor of medicine at johns hopkins medical school at a time 5the coinventor of the icd had the right under the icd patents license agreement to receive approximately percent of the royalties paid for_the_use_of the icd patents not disclosed by the record ms mirowski developed hypertension on date dr mirowski died at the time of dr mirowski’s death ginat mirowski was a student at harvard univer- sity in cambridge massachusetts from which she eventually obtained dental and medical degrees ariella rosengard was a physician and a pathology resident at johns hopkins university hospital in baltimore john hopkins hospital was married and had a daughter and doris frydman was a medical student at emory university in atlanta georgia pursuant to dr mirowski’s will the icd patents his interest under the icd patents license agreement and the remain- der of his assets except for dollar_figure passed to ms mirowski ms mirowski maintained a long and continuous history of making gifts to family members and friends throughout the ten- year period preceding her death in ms mirowski continued to evaluate and make gifts to or for the benefit of her three daughters her grandchildren and others whenever ms mirowski made gifts to her daughters or to the respective trusts that she created for them discussed below she always paid the related gift_tax on date ms mirowski created an irrevocable so-called spendthrift trust for each of her three daughters and 6at the time of ms mirowski’s death each of her daughters had two children their respective issue in order to provide for each daughter during the daughter’s life and each daughter’s children after the daughter died we shall refer to the respective trusts that ms mirowski created for ginat mirowski ariella rosengard and doris frydman and their respective issue as the ginat trust the ariella trust and the doris trust we shall refer collectively to those trusts as the daughters’ trusts ms mirowski named all three of her daughters as cotrustees of each of the daugh- ters’ trusts she did so specifically because she wanted her daughters to work together and have a close working relationship under the terms of each of the daughters’ trusts the trustees had to pay income to the daughter for whom ms mirowski created the trust and had the discretion to pay principal to that daughter for her health maintenance educa- tion and support upon the death of a daughter the corpus of that daughter’s trust was to continue to be held in trust or to be paid over to that daughter’s issue depending on the age of such issue on date the same date on which ms mirowski created her daughters’ trusts she funded the ginat trust and the ariella trust by transferring to each of those trusts five percent of her interest under the icd patents license agreement on the same date ms mirowski funded the doris trust by trans- ferring to that trust ten percent of her interest under that agreement on date ms mirowski provided additional funding to the ginat trust and the ariella trust by transferring to each of those trusts dollar_figure percent of her remaining interest under the icd patents license agreement after the above-de- scribed funding of the daughters’ trusts ms mirowski held a 09-percent interest in the royalties under that agreement and each of those trusts held a 2616-percent interest in those royalties in addition to a long and continuous history of making gifts to family members and friends ms mirowski maintained a long and continuous history of making philanthropic and charitable gifts after dr mirowski died ms mirowski centered her charitable endeavors on keeping her husband’s memory alive and furthering research in cardiology to those ends ms mirowski made dona- tions to hadassah hospital in israel johns hopkins hospital where she created a professorship a fellowship in cardiology and a lectureship the university of rochester in rochester new york and sinai hospital in baltimore in addition in ms mirowski created a charitable foundation known as mirowski family_foundation inc foundation through which she conducted various charitable endeavors 7dr mirowski’s coinventor of the icd continued to hold approximately a 27-percent interest in the royalties under the icd patents license agreement for various reasons sales of icds increased significantly after dr mirowski died in as a result the royalties received under the icd patents license agreement by ms mirowski and her daughters’ trusts increased dramatically from thousands of dollars a year to millions of dollars a year at the time of ms mirowski’s death the royalties payable under that agreement to which mfv was entitled totaled millions of dollars a year before dr mirowski died he was primarily responsible for managing the financial affairs of ms mirowski and himself after dr mirowski’s death ms mirowski who did not remarry became primarily responsible for managing her own financial affairs when ms mirowski first started investing she was a highly conservative investor in order to assist ms mirowski in managing her financial affairs after dr mirowski died ariella rosengard began to act as a bookkeeper for her thereafter ginat mirowski who fre- quently discussed her own investments with ms mirowski also acted as a bookkeeper for ms mirowski and provided advice and suggestions to her regarding her investments at no time did ariella rosengard or ginat mirowski make financial decisions for ms mirowski 8before ms mirowski’s death doris frydman was not involved in ms mirowski’s financial affairs during the period in which ariella rosengard was performing bookkeeping functions for ms mirowski ms mirowski’s invest- ments consisted primarily of securities issued by the united_states treasury_department u s treasury securities ms mirowski received directly the checks for any interest payments on those securities and deposited those checks into one of her various bank accounts during that period ms mirowski pre- ferred to have her investments and financial accounts tracked on a large spreadsheet which permitted her to monitor them by after royalties from the icd patents had increased dramatically it became quite burdensome to use a large spread- sheet in order to track and manage ms mirowski’s investments and financial accounts that was in large part because even though ms mirowski’s investments were primarily of the same type ie u s treasury securities she had over accounts in ten different institutions in date at the suggestion of ginat mirowski ms mirowski met with william lewin mr lewin of goldman sachs co goldman sachs regarding the establishment of an invest- ment account with that firm ginat mirowski made that suggestion to ms mirowski because in she and her husband had met with mr lewin and thereafter established an account at goldman sachs that mr lewin managed over time ginat mirowski concluded that the goldman sachs account that she and her husband maintained was significantly outperforming investments that she and her husband managed on their own as a result of the investment experience and success of the goldman sachs account of ginat mirowski and her husband about which ginat mirowski told her mother ms mirowski began to realize that her investment portfolio could perform better if she were to diversify that portfolio and consolidate her investments at one investment firm ms mirowski was a careful deliberate and thoughtful decisionmaker especially with respect to financial matters it was not until date approximately months after ms mirowski first met with mr lewin in february of that year that she opened an account with goldman sachs ms mirowski’s goldman sachs account for an initial period after she opened that account ms mirowski continued to maintain investment accounts with other investment and financial institutions beginning in date ms mirowski deposited certain cash and securities into ms mirowski’s goldman sachs account initially the securities that ms mirowski deposited into ms mirowski’s goldman sachs account consisted of u s treasury securities shortly after ms mirowski opened ms mirowski’s goldman sachs account at her direction goldman sachs purchased municipal_bonds for that account thereafter at ms mirowski’s direction goldman sachs purchased equities for ms mirowski’s goldman sachs account all of those purchases were part of ms mirowski’s plan to diversify her portfolio with the help of goldman sachs on date representatives from goldman sachs made a presentation to ms mirowski during that presentation those representatives described various strategies and considerations relating to investment management including an overview of asset allocation and its importance in various portfolio allocation scenarios ms mirowski met or spoke with representatives from goldman sachs approximately three to five times a month in order to obtain an update on her investment portfolio and the moneys eg interest payments deposited into ms mirowski’s goldman sachs account from time to time after ms mirowski opened ms mirowski’s goldman sachs account representatives of that firm advised her regarding particular investments or investment strategies at times she accepted the suggestions of those representatives and at other times she rejected them ms mirowski was a decisive investor and actively made every decision regarding the purchase of securities by goldman sachs for ms mirowski’s goldman sachs account in early after ms mirowski came to trust the goldman sachs representatives with whom she was dealing she decided to consolidate all of her investments into the one account with goldman sachs that she had established ie ms mirowski’s goldman sachs account in ms mirowski’s daughter doris frydman had neuro- logic surgery at yale university hospital to treat her chronic condition of epilepsy at least as early as late or early in large part because of her daughter doris frydman’s condition ms mirowski began to think about ways in addition to her daughters’ trusts to provide for her daughters and her grandchildren on an equal basis moreover at least as early as around that time ms mirowski started thinking about ways in addition to her daughters’ working together as trustees of each of the daughters’ trusts to allow them to work together and have a close working relationship in date ms mirowski met with representatives of u s trust date meeting with u s trust at the home of ariella rosengard in philadelphia at that time representatives of u s trust introduced ms mirowski to the concept of a limited liabil- ity company llc after ms mirowski’s date meeting with u s trust she began discussing with her attorney sidney j silver mr silver the possibility of forming an llc thereafter on date mr silver sent a letter mr silver’s date letter to ms mirowski and enclosed with that letter draft articles of organization and a draft operating_agreement for an llc to be named mirowski family ventures l l c mr silver sent copies of that letter and those enclosures to ms mirowski’s daughters mr silver’s date letter stated in perti- nent part re financial and tax planning dear anna in accordance with my recent telephone discussion with your daughter ginat and my earlier discussion with your daughter ariella we have prepared drafts of two documents for your review and consideration in connec- tion with financial and tax planning on behalf of you and your family as follows articles of organization of mirowski family ventures l l c operating_agreement of mirowski family ventures l l c by copy of this letter we are forwarding copies of these documents to each of your daughters for their review after such documents have been reviewed we will be pleased to answer any questions or make such modifications you may request thereto ms mirowski often waited until her family was together in order to have family discussions regarding any important deci- sions the next time the family planned to be together after having received mr silver’s date letter and the draft articles of organization and the draft operating_agreement for an llc was in date the family planned a meeting with mr silver at that time at which he was to explain ms mirowski’s plans in date ms mirowski took a trip to france to visit her sister who had been hit by an automobile during that trip ms mirowski wore tight shoes that caused a blister on her foot as a result of that blister and her diabetes ms mirowski developed a foot ulcer in date after ms mirowski returned to the united_states from france she began medical treatment for her foot ulcer although such an ulcer requires care and treatment with proper treatment a patient with a foot ulcer resulting from diabetes is expected to recover from such a condition on date ms mirowski signed an agreement for occupancy residency rights in an apartment at a retirement community known as north oaks north oaks retirement community which is located near where ms mirowski and her friends resided in baltimore county maryland ten days later on date when she wa sec_73 years old ms mirowski underwent a surgical procedure at johns hopkins hospital to treat her foot ulcer on date ms mirowski signed an agreement for occupancy residency rights in an apartment at a retirement community known as waverly heights ltd waverly heights contin- uing care retirement community which is located in gladwne pennsylvania near where ariella rosengard and doris frydman were living when ms mirowski signed that agreement on date waverly heights accepted that agreement ms mirowski committed well over dollar_figure for the occupancy residency rights at the north oaks retirement community and the waverly heights continuing care retirement community for which she had contracted in ms mirowski planned to live primarily in the residence at the north oaks retirement community after ms mirowski con- tracted in early date to buy that residence she spent considerable resources and she and her daughters spent consider- able effort in renovating it although ms mirowski purchased a small studio apartment at the waverly heights continuing care retirement community she did so only because a larger unit that she intended to acquire was not available buying a smaller unit enabled her to obtain a preference on the waverly heights contin- uing care retirement community’s waiting list for larger units between march and date ms mirowski received treat- ment for her foot ulcer from nurses who visited her at home and from her physician when she made intermittent visits to johns hopkins hospital throughout the course of ms mirowski’s treatment for her foot ulcer her physician talked to her family in particular ariella rosengard on numerous occasions about ms mirowski’s condition and treatment throughout that time ms mirowski’s physician presented ms mirowski and her family with a wide variety of appropriate medical treatment alternatives including the possibility of amputation from date until the time of her death ms mirowski consistently indicated that she was not comfortable with amputation because of its debilitat- ing effects in mid-date ms mirowski’s daughters and their families took their annual vacation in rehoboth beach during that vacation on date they held their previously planned mirowski family annual meeting date mirowski family annual meeting to which they had invited mr silver ms mirowski was not present at that meeting at the date mirowski family annual meeting ms mirowski’s daughters discussed with mr silver the following ms mirowski’s plans to form mfv ms mirowski’s plans to make respective gifts of interests in mfv to her daughters’ trusts the manner in which mfv was to function and the responsibilities of her daughters with respect to mfv at the time of the date mirowski family annual meeting and thereafter until date ms mirowski’s health was not rapidly deteriorating in fact on date ms mirowski visited her physician at johns hopkins hospi- tal for a preoperative evaluation with respect to the cataract surgery that she planned to have at that hospital ms mirowski planned to undergo cataract surgery in order to enhance her vision so that she could continue with her normal activities and improve her quality of life after the date mirowski family annual meeting mr silver finalized the documents required for ms mirowski to form mfv although ms mirowski understood that certain tax benefits could result from forming mfv those potential tax benefits were not the most significant factor in her decision to form mfv to the contrary ms mirowski had the following legitimate and significant nontax purposes for forming and transferring the bulk of her assets to mfv joint manage- ment of the family’s assets by her daughters and eventually her grandchildren maintenance of the bulk of the family’s assets in a single pool of assets in order to allow for investment opportunities that would not be available if ms mirowski were to make a separate gift of a portion of her assets to each of her daughters or to each of her daughters’ trusts and providing for each of her daughters and eventually each of her grandchil- dren on an equal basis with respect to ms mirowski’s purpose in forming mfv of having her daughters and eventually her grandchildren jointly manage the family’s assets that purpose was rooted in ms mirowski’s formative years in lyon where her family worked together in the family business ms mirowski valued the family cohesiveness that joint management of a family business can foster although ms mirowski was aware that her daughter 9after ms mirowski left france and moved to israel and ultimately to the united_states with dr mirowski and their daughters ms mirowski was unable to continue working together with her family in the family business in france which she regretted very much ariella rosengard would probably move to england with her husband and children ms mirowski wanted her daughters and eventually her grandchildren to work together remain closely knit and be jointly involved in managing the investments derived from the royalties received from dr mirowski’s invention of the icd and the business matters relating to the icd patents and the icd patents license agreement including the litigation arising with respect to those patents and that license agreement with respect to ms mirowski’s purpose in forming mfv of maintaining in a single pool the bulk of the family’s assets in order to allow for investment opportunities that would otherwise be unavailable certain investment opportunities at goldman sachs would not have been available if ms mirowski had separated her assets among her daughters or her daughters’ trusts by giving a portion of those assets to each daughter or each trust with respect to ms mirowski’s purpose in forming mfv of providing for each of her daughters and eventually each of her grandchildren on an equal basis the formation of mfv and the transfer by ms mirowski of an equal interest in it to each of her daughters’ trusts enabled ms mirowski to ensure that her daughters and eventually her grandchildren would continue to hold respective interests of equal worth in the bulk of the family’s assets in addition to the above-described legitimate and signifi- cant nontax purposes another legitimate but not significant nontax reason ms mirowski formed and transferred the bulk of her assets to mfv was that she wanted to provide additional protection from potential creditors for the interests in the family’s assets that she intended to provide to her daughters and eventually her grandchildren although ms mirowski was aware that her daughters’ trusts included provisions providing spend- thrift protection from creditors she desired the additional creditor protection provided by an llc in particular the protec- tion that an llc would provide in the event of any negative developments in the respective marriages of her daughtersdollar_figure on date mr silver sent a letter mr silver’s date letter to ms mirowski and enclosed with that letter final versions of the articles of organization and the operating_agreement for mfv that he had prepared mr silver sent copies of that letter and enclosures to ms mirowski’s three daughters mr silver’s date letter stated in perti- nent part 10at the time of the trial in this case none of ms mirowski’s daughters had been married more than once nor had any of them ever been separated from her spouse because of marital problems re business financial estate_planning matters dear anna reference is made to my correspondence to you of date and my subsequent telephone discussions with you relative to the meeting that was held with your daughters ginat mirowski ariella rosengard doris frydman and their respective spouses on date we are beginning the process of implementing the estate plan which i recently discussed with you i am enclosing herewith bond copies of the follow- ing documents the drafts of which were enclosed in my correspondence to you of date articles of organization of mirowski family ventures l l c operating_agreement of mirowski family ventures l l c please sign the articles of organization at the two places designated for your signature by an arrow please sign both copies of the operating_agreement at the place designated for your signature on page thereof leave the date blank for the time being upon full execution of both documents please return all copies to me in the enclosed federal express envelope please do not hesitate to contact me if you have any questions with respect to the foregoing on date ms mirowski executed the articles of organization mfv’s articles of organization to create mirowski family ventures l l c on the same date she executed the operating_agreement for mfv mfv’s operating_agreement dollar_figure except for mfv’s operating_agreement at no time was there any 11mfv’s articles of organization and mfv’s operating agree- ment listed mfv’s principal office as the address of ms mirowski’s residence in owings mills md express or unwritten agreement or understanding among ms mirowski and her daughters regarding how mfv would be operated on date the department of assessments and taxation of the state of maryland maryland department of assessments and taxation accepted mfv’s articles of organization for filingdollar_figure on date ms mirowski was admitted to johns hopkins hospital for further treatment of her foot ulcer on date ms mirowski made a bona_fide arm’s- length transfer ms mirowski’s date transfer to mfv of certain property including the icd patents and ms mirowski’ sec_51 09-percent interest under the icd patents license agreement and received in exchange for that property a percent interest in mfv after ms mirowski’s date transfer ms mirowski was the only member of mfv since mfv was formed no person other than ms mirowski made any transfers of property to mfv on date ms mirowski’s physician noted an intention to discuss with ms mirowski’s daughters the need to plan for her long-term care when she returned home after her discharge from the hospital 12mfv requested expedited processing by the maryland depart- ment of assessments and taxation for which it paid an additional dollar_figure fee 13ms mirowski transferred her 09-percent interest under the icd patents license agreement pursuant to a document entitled assignment of all right title interest on date ms mirowski made another bona_fide arm’s-length transfer ms mirowski’s date transfer to mfv of certain property consisting of securities with an aggregate value of dollar_figure that she held in ms mirowski’s goldman sachs accountdollar_figure ms mirowski authorized goldman sachs to effect ms mirowski’s date transfer by transfer- ring securities valued at dollar_figure from ms mirowski’s goldman sachs account to another account established at goldman sachs in the name of mfv mfv’s goldman sachs account after ms mirowski’s date transfer ms mirowski continued to hold a 100-percent interest in mfv on september and ms mirowski made additional bona_fide arm’s-length transfers ms mirowski’s september and transfers to mfv of certain property consisting of securities and cash with an aggregate value of dollar_figure that she held in ms mirowski’s goldman sachs account ms mirowski’s september and transfers were effected by goldman sachs in the same manner in which that firm effected ms mirowski’s date transfer after ms mirowski’s september and transfers ms mirowski continued to hold a 100-percent inter- est in mfv we shall refer collectively to ms mirowski’s date transfer ms mirowski’s date 14as of date ms mirowski’s goldman sachs account had a total value of dollar_figure transfer and ms mirowski’s september and transfer to mfv as ms mirowski’s transfers to mfv at no time did ms mirowski contemplate forming mfv without making a gift of an interest in mfv to each of her daughters’ trusts thus on date ms mirowski made a gift of a 16-percent interest in mfv to each of those trustsdollar_figure those gifts were an integral part of ms mirowski’s plan in forming and transferring the bulk of her assets to mfv we shall sometimes refer collectively to ms mirowski’s respective gifts of percent interests in mfv to her daughters’ trusts as ms mirowski’s gifts ms mirowski understood that based upon the value of the assets that she transferred to mfv in exchange for a 100-percent interest in mfv her respective gifts of 16-percent interests in mfv to her daughters’ trusts would result in a substantial gift_tax for ms mirowski’s daughters were not aware of specif- ically how ms mirowski planned to pay the substantial gift_tax on those gifts however they were aware that ms mirowski had retained substantial personal assets that she did not transfer to mfv including over dollar_figure million in cash and cash equivalents ms mirowski’s daughters also knew that ms mirowski anticipated 15except for the respective gifts to her daughters’ trusts that ms mirowski made in and ms mirowski made no gifts to those trusts before her respective gifts on date of 16-percent interests in mfv receiving as an interest holder in mfv future income of millions of dollars a year attributable to royalty payments under the icd patents license agreement in addition ms mirowski’s daughters believed that ms mirowski could have borrowed against her interest in mfv in order to pay the substantial gift_tax liabil- ity attributable to her respective gifts to her daughters’ trusts of 16-percent interests in mfv at no time before ms mirowski’s death did the members of mfv have any express or unwritten agreement or understanding to distribute assets of mfv in order to pay that gift_tax liability after the respective gifts to her daughters’ trusts of percent interests in mfv ms mirowski held a 52-percent inter- est and each of those trusts held a 16-percent interest in mfv as discussed above mfv held a 09-percent interest under the icd patents license agreement after ms mirowski’s date transfer to mfv each of the daughters’ trusts continued to hold a 2616-percent interest under the icd patents license agreement after ms mirowski made a gift of a 16-percent interest in mfv to each of those trusts after ms mirowski’s transfers to mfv she retained in her individual name the following assets personal assets valued at approximately dollar_figure ms mirowski’s home valued at dollar_figure cash16 and cash equivalents of approximately dollar_figure personal_property consisting primarily of fine art valued at approximately dollar_figure a loan of dollar_figure due from north oaks retirement community pursuant to the north oaks residency agreement and loan agreement that ms mirowski signed on date a right to receive a refund of dollar_figure that she paid as an occupancy rights fee pursuant to the waverly heights residence and care agreement dated date a promissory note of ginat mirowski and her husband that had an outstanding balance of dollar_figure plus accrued interest of dollar_figure a promissory note of ariella rosengard and her husband that had an outstanding balance of dollar_figure plus accrued interest of dollar_figure and a promissory note of doris frydman and her husband that had an outstanding balance of dollar_figure plus accrued interest of dollar_figuredollar_figure in addition ms mirowski was the beneficiary of a_trust established under dr mirowski’s will that had a value of dollar_figure at no time before ms mirowski died 16at the end of ms mirowski’s cash holdings consisted of approximately dollar_figure in accounts with certain banks 17article second paragraph b of the last will and testa- ment of ms mirowski provided that all indebtedness owed to her at the time of her death by any of her daughters was to be canceled article second paragraph c of that last will and testament directed ms mirowski’s personal representative to use a formula specified therein in order to equalize the aggregate benefits to be received by each of her daughters from her estate that formula was dependent upon the amount of indebtedness owed to ms mirowski by each of her daughters at the time of her death were the assets of mfv commingled with her personal assets at no time was there any express or unwritten agreement or under- standing among ms mirowski and her daughters that ms mirowski would distribute assets from mfv in order to pay any unexpected financial obligations of ms mirowski after ms mirowski’s transfers to mfv ms mirowski retained more than enough personal assets to meet her living_expenses however ms mirowski did not retain enough personal assets in order to pay from those assets the substantial gift_tax for which she would be liable with respect to her contemplated respective gifts of 16-percent interests in mfv to her daughters’ trusts nonetheless in order to pay that anticipated gift_tax liability and any unexpected financial obligations ms mirowski could have used a portion of the over dollar_figure million of personal assets that she retained and did not transfer to mfv including cash and cash equivalents of over dollar_figure million used a portion or all of the distributions that she expected to receive as an interest holder in mfv of the millions of dollars of royalty payments under the icd patents license agreement that she expected mfv to receive and borrowed against a the personal assets that she retained and did not transfer to mfv and b her 52-percent interest in mfv at the time of and after ms mirowski’s respective gifts of 16-percent interests in mfv to her daughters’ trusts there was no express or unwritten agreement or understanding among the members of mfv that ms mirowski at her own discretion could have access to any of the assets that she transferred to mfv for her own possession or enjoyment the right to income from those assets or the right to determine who could possess or enjoy those assets nor was there any express or unwritten agreement or understanding among the members of mfv that ms mirowski would retain during her life the economic use and benefits of the assets that she transferred to mfv and would provide for her daughters and her grandchildren only upon her death pursuant to section i18 and sec_3_6 of mfv’s operating_agreement the capital_account of ms mirowski was to be credited with the respective contributions of property that she made to mfv on september and and her capital_account was to be properly maintained thereafter pursuant to section i of mfv’s operating_agreement as a result of ms mirowski’s gift of a 16-percent interest in mfv to each of her daughters’ trusts each of those trusts succeeded to the capital_account of ms mirowski to the extent the capital_account was attributable to the 16-percent interest in mfv that ms mirowski gave to each trust 18section i of mfv’s operating_agreement is titled defined terms pertinent portions of that operating_agreement are quoted in the appendix hereto pursuant to sec_3_4 of mfv’s operating_agreement no interest holder including ms mirowski was to have the right to receive the return of any capital_contribution except as otherwise provided in that agreement the only provision in mfv’s operating_agreement for the return of a capital contribu- tion to an interest holder was in the event of the liquidation and dissolution of mfvdollar_figure pursuant to sec_4 of mfv’s 19section iii of mfv’s operating_agreement is titled mem- bers capital capital accounts 20section i of mfv’s operating_agreement defined the term_interest holder to mean any person who holds a membership interest whether as a member or as unadmitted assignee of a member section i of mfv’s operating_agreement defined the term member to mean each person signing this agreement and any person who subsequently is admitted as a member of the company 21section vii of mfv’s operating_agreement titled dissolu- tions liquidation and termination of the company addressed inter alia the distribution of mfv’s assets upon its liquidation and dissolution section of mfv’s operating_agreement provided procedure for winding up and dissolution if the company is dissolved the general manager shall wind up its affairs on winding up of the company the assets of the company shall be distributed i to creditors of the company including interest holders who are creditors in satisfaction of the liabilities of the company ii to interest holders and former interest holders in satisfaction of unpaid distributions iii to interest holders for the return_of_capital contributions and continued operating_agreement if mfv were to be liquidated its assets were required to be distributed to the interest holders in mfv in accordance with the balances in their respective capital ac- counts pursuant to mfv’s operating_agreement during the normal course of mfv’s operations ms mirowski was not entitled to the return of the assets that she transferred to mfv pursuant to sec_5 of mfv’s operating_agreement mfv was to be managed by a general manager who could be but did not have to be a member of mfv that section of mfv’s operating_agreement designated ms mirowski to serve as the initial general manager of mfv all of ms mirowski’s powers as mfv’s initial general manager were subject_to other provisions of mfv’s operat- ing agreement and the requirements of applicable law including the applicable law of the state of maryland maryland law which imposed on her a fiduciary duty to the other members of mfvdollar_figure continued iv to interest holders in proportion to their respective capital accounts and then to the interest holders in accordance with sec_4 relat- ing to the distribution of mfv’s assets upon its liqui- dation and dissolution sec_4 of mfv’s operating_agreement is titled liqui- dation and dissolution 23section v of mfv’s operating_agreement is titled manage- ment rights powers and duties sec_5 of mfv’s operating_agreement described the general powers of mfv’s general manager in pertinent part as follows continued although ms mirowski held a 52-percent interest in mfv and was its general manager pursuant to sec_5 and of mfv’s operating_agreement she could not sell or otherwise dispose_of any of the assets of mfv other than in the ordinary course of mfv’s operations without the approval of all the members of mfvdollar_figure pursuant to section of mfv’s operat- ing agreement ms mirowski could not liquidate and dissolve mfv without the approval of all the members of mfv pursuant to sec_5 and of that operating_agreement ms mirowski could not admit additional members to mfv without the continued general powers the general manager shall have full exclusive and complete discretion power and authority subject in all cases to the other provi- sions of this agreement and the requirements of appli- cable law to manage control administer and operate the business and affairs of the company for the pur- poses herein stated and to make all decisions affect- ing such business and affairs 25in other words pursuant to sec_5 and of mfv’s operating_agreement ms mirowski could not undertake any capital_transaction without the approval of all mfv’s members the term capital_transaction is defined in section i of mfv’s operating_agreement to mean any transaction not in the ordinary course of business which results in the company’s receipt of cash or other consideration other than capital contributions includ- ing without limitation proceeds of sales or exchanges or other dispositions of property not in the ordinary course of business financings refinancings condemna- tions recoveries of damage awards and insurance proceeds as used hereinafter the term capital_transaction shall have the meaning set forth in section i of mfv’s operating_agreement approval of all the members of mfv pursuant to sec_4 of mfv’s operating_agreement profit or loss other than profit or loss derived from a capital_transaction for any taxable_year was to be allocated to mfv’s interest holders in proportion to their respective percentage interests in mfv pursuant to sec_4 of mfv’s operating_agreement mfv was required to make within days after the end of each taxable_year distributions to mfv’s interest holders of mfv’s cash flow27 for the taxable_year in proportion to such members’ respective percentage interests in mfv pursuant to sec_4 and sec_4 of mfv’s operat- ing agreement profit or loss from a capital_transaction was to sec_4 of mfv’s operating_agreement is titled dis- tributions of cash_flow and allocations of profit or loss other than capital_transactions 27the term cash_flow is defined in section i of mfv’s operating_agreement to mean all cash funds derived from operations of the company including interest received on reserves without reduction for any non-cash charges but less cash funds used to pay current operating_expenses and to pay or establish reasonable reserves for future expenses debt payments capital improvements or replacements as determined in the sole discretion of the general man- ager cash_flow shall not include capital proceeds but shall be increased by the reduction of any reserve previously established sec_4 of mfv’s operating_agreement is titled dis- tribution of capital proceeds and allocation of profit or loss continued be allocated to mfv’s interest holders in proportion to their respective capital accounts pursuant to sec_4 of mfv’s operating_agreement capital proceeds ie gross_receipts from a capital transac- tion shall be distributed in proportion to the respective capital accounts of mfv’s interest holders after the payment of all expenses incident to the capital_transaction the payment of debts and liabilities due and outstanding and the establishment of any reserves that mfv’s general manager deemed necessary for mfv’s liabilities or obligations pursuant to sec_4 of mfv’s operating_agreement except as otherwise provided in that agreement the timing and the amount of all distributions shall be determined by the members holding a majority of the percentages then outstanding pursuant to section of mfv’s operating_agreement the occurrence of a so-called involuntary withdrawal of a member which included the death of a member was to cause mfv to be dissolved unless the remaining members of mfv unanimously were to elect to continue mfv’s business pursuant to the terms of mfv’s operating_agreement continued from capital_transactions sec_4 of mfv’s operating_agreement is titled general from date when ms mirowski was admitted to johns hopkins hospital for further treatment of her foot ulcer until her condition unexpectedly deteriorated significantly on date the expectation of the members of the medical staff at johns hopkins hospital who were responsible for treating ms mirowski was that the treatment of her foot ulcer would allow her to recover and return to her home at no time before septem- ber did ms mirowski her family or her physicians expect her to die consequently at no time did ms mirowski and her daughters discuss or anticipate the estate_tax and similar transfer_taxes and the other estate obligations that would arise only as a result of ms mirowski’s death ms mirowski’s daughters spoke with their mother frequently sometimes multiple times a day and at other times several times a week during the period ms mirowski was being treated for her foot ulcer ariella rosengard spoke to ms mirowski’s physicians on a regular basis as both a daughter and a physician herself ariella rosengard was highly familiar with her mother’s medical_condition moreover during that same period ariella rosengard not only spoke with ms mirowski several times a day but also visited her almost every weekend and sometimes during the middle of the week sometime in early date ariella rosengard and ms mirowski discussed ms mirowski’s intention to travel to philadelphia to attend ariella rosengard’s annual open house for rosh hashanah that was to take place on date ms mirowski told ariella rosengard that she intended to bring various desserts for that open house as she had done in past years on date ginat mirowski her husband and her two children visited ms mirowski at johns hopkins hospital at that time ginat mirowski and her family expected ms mirowski to return home after she received antibiotics and surgical treatment for her foot ulcer between that time and date the day before ms mirowski died ginat mirowski and her family communicated multiple times with ms mirowski at those times ms mirowski sounded quite upbeat and spoke of feeling well on date ariella rosengard left the united_states in order to attend a medical conference in strasbourg france strasbourg while in france ariella rosengard spoke to ms mirowski on each of the days september and and believed that her mother’s life was not in jeopardy on any of those days at that time ariella rosengard understood that her mother was receiving as she had in the past intravenous and surgical treatment for her foot ulcer and expected her mother to return home at the conclusion of that treatment if ariella rosengard had believed that her mother’s health was rapidly declining on date such that her mother’s life was in jeopardy she would not have left the united_states to attend the medical conference in strasbourg moreover if ms mirowski believed that her health was rapidly declining on date she would have wanted ariella rosengard to remain in the united_states to be close to her sisters on date ginat mirowski called her mother at johns hopkins hospital and noticed that she did not sound like herself later that day ginat mirowski canceled her clinic appointments for the week and traveled to johns hopkins hospital to visit her mother unexpectedly on date ms mirowski’s condi- tion deteriorated significantly at that point amputation was recommended by her physician as a means of avoiding further complications including possible life-threatening infections ms mirowski declined amputation on date ms mirowski began to suffer from multiple system failure and refused all additional medical treatment as a result of the signif- icantly worsening condition of ms mirowski’s foot ulcer and her decision not to have the infected limb amputated she developed sepsis a severe and often life-threatening illness caused by an overwhelming infection of the blood stream by toxin-producing bacteria on date pincite a m approximately one day after the onset of ms mirowski’s development of sepsis she died shortly after ms mirowski died on date decedent’s estate through its personal_representatives and the remaining members of mfv ie the daughters’ trusts through their respective trustees ie ms mirowski’s daughters executed a memorandum regarding mfv’s operating_agreement in that memorandum inter alia each of those trusts through its trustees acknowledged receipt of an interest and membership in mfvdollar_figure on date the remaining members of mfv ie the daughters’ trusts through their respective trustees also held a special meeting date special meeting at that meeting those members elected the following officers in order to continue mfv’s business ginat mirowski as its general manager and president doris frydman as its vice president and ariella rosengard as its secretary treasurer at the date special meeting the remaining members of mfv ie the daughters’ trusts also discussed through their respective trustees mfv’s goldman sachs account that mfv had recently opened and they passed a resolution authorizing and ratifying the establishment and maintenance of that account 30an exhibit attached to the memorandum regarding mfv’s operating_agreement reflected the date respective membership interests in mfv of decedent and the daughters’ trusts after ms mirowski’s respective gifts of 16-percent interests in mfv to those trusts as well as the amount of decedent’s basis in the 16-percent interest that she gave to each of those trusts which carried over to each trust pursuant to ms mirowski’s will the daughters’ trusts inherited in equal shares ms mirowski’s 52-percent interest in mfv as a result after the probate of decedent’s will is closed those trusts will own collectively percent of mfv in three equal shares ms mirowski died on the day on which there were terrorist attacks in the united_states those terrorist attacks created market conditions that were particularly advantageous to diversi- fying mfv’s investment holdings and mfv’s investment holdings were further diversified shortly after ms mirowski died although the precise timing of the diversification of mfv’s investment holdings following ms mirowski’s death was attribut- able to the terrorist attacks on the date of her death that diversification was in accordance with the intentions of ms mirowski before she died since ms mirowski’s death the daughters’ trusts as the remaining members of mfv have chosen not to receive distribu- tions of all of mfv’s annual cash_flow as defined in mfv’s operating_agreement instead they decided that mfv will rein- vest all of that cash_flow beyond that required for payment of taxes and expenses by the members mfv’s members feel strongly that the benefits of reinvesting mfv’s annual cash_flow far outweigh any benefits that could be derived from distributing it at all relevant times including after ms mirowski’s death mfv has been a valid functioning investment operation and has been managing business matters relating to the icd patents and the icd patents license agreement including related litigation as ms mirowski had hoped her daughters in their capacities as officers of mfv and as trustees of mfv’s members have actively worked together to manage mfv’s assets ms mirowski’s daughters have held meetings with representatives of goldman sachs approxi- mately three to four times a year in order to review mfv’s goldman sachs’ account performance and asset allocation and to determine what if any changes should be made in the future for at least one of those meetings each year all of ms mirowski’s daughters have been present in person for the several other meetings each year the daughters have met together in person or have participated in a meeting by teleconference all of ms mirowski’s daughters jointly have made investment decisions for mfv and plan to have each of their respective children also become involved in such decisionmaking when they reach the appropriate age in addition ms mirowski’s daughters have worked together on matters concerning the business of managing the icd patents the icd patents license agreement and related litigation at the time of the trial in this case there was substantial ongoing litigation relating to those patents and that license agreement with respect to which ms mirowski’s daughters communicated several times a week with mfv’s attorney mr silver as ms mirowski also had hoped mfv’s members have benefited from having mfv’s assets held in a single pool rather than held separately by ms mirowski’s daughters or the daughters’ trusts for example goldman sachs charges lower fees for larger ac- counts in addition mfv has had the opportunity to participate in certain investments that would not have been available on an individual basis to ms mirowski’s daughters or her daughters’ trusts if instead of creating mfv transferring the bulk of her assets to it and giving certain interests in mfv to those trusts ms mirowski had made a separate gift of her assets to each of her daughters or each of those trusts during mfv which had made no distributions during made distributions totaling dollar_figure to decedent’s estate in order for decedent’s estate to pay federal and state transfer_taxes legal fees and other obligations of decedent’s estatedollar_figure at the time in when mfv made distributions to decedent’s estate mfv’s members ie the daughters’ trusts through their respective trustees ie ms mirowski’s daugh- ters agreed and decided that mfv should not make distribution sec_31the federal and state transfer_taxes paid with funds that mfv distributed to decedent’s estate during totaled dollar_figure of which dollar_figure was ms mirowski’s estimated gift_tax for that as discussed below decedent’s estate paid in date to themselvesdollar_figure in making that decision mfv’s members had in mind that those members will own collectively percent of mfv in three equal shares after decedent’s estate is closed for each of the years through ms mirowski filed form_709 united_states gift and generation-skipping_transfer_tax return form_709 to reflect the substantial gifts that she made during each of those years to or for the benefit of her daughters her grandchildren and certain othersdollar_figure the aggre- gate value of the gifts that ms mirowski made during the years through was dollar_figure on date decedent’s estate paid estimated gift_tax of dollar_figure with funds that mfv distributed to it thereaf- ter on or about date decedent’s personal representa- tives timely filed form_709 for on behalf of decedent form_709 dollar_figure those representatives reported in that form ms 32in other words mfv’s members agreed and decided that during mfv should not make pro_rata distributions to all of the interest holders of mfv form_1065 u s return of partner- ship income form_1065 for mfv’s taxable_year erroneously reported for reasons not disclosed by the record that the distri- butions that mfv made during that year were charged against the respective capital accounts of mfv’s interest holders on virtu- ally a pro_rata basis 33ms mirowski also filed amended form_709 for each of the years and 34from through ms mirowski made charitable gifts totaling in excess of dollar_figure 35the form_709 erroneously reported for reasons not continued mirowski’s gift on date to each of her daughters’ trusts of a 16-percent interest in mfv and valued each of those gifts at dollar_figure in the form_709 decedent’s personal_representatives reported gift_tax for of dollar_figure which resulted in a credit to decedent’s estate of dollar_figure decedent’s estate timely filed form_706 united_states estate and generation-skipping_transfer_tax return form_706 showed estate_tax of dollar_figure which decedent’s estate paid on date with funds that mfv distributed to itdollar_figure respondent issued to decedent’s estate a notice of defi- ciency in which respondent determined an estate_tax deficiency of dollar_figure in support of that deficiency determination respondent determined inter alia to increase decedent’s gro sec_35 continued disclosed by the record that ms mirowski made gifts of furniture on date to ariella rosengard valued at dollar_figure and gifts of jewelry on the same date to doris frydman valued at dollar_figure ms mirowski did not in fact make those gifts on date as reported in the form_709 when ms mirowski purchased the items of furniture and jewelry in question she had her daughters ariella rosengard and doris frydman in mind and intended to make those respective gifts to them during her life 36in the parties’ stipulation of settled issues the parties agreed that the value of the 16-percent interest in mfv that ms mirowski gave to each of her daughters’ trusts is dollar_figure see supra note 37see supra note sec_1 and 38the liability shown in the maryland estate_tax_return that decedent’s estate filed was dollar_figure which decedent’s estate paid on date with funds that mfv distributed to it see supra note estate by dollar_figure ie from dollar_figure to dollar_figure with respect to decedent’s interest in mfv respondent did so because respondent determined that the total of the respective date-of-death fair market values of all of the assets that decedent transferred to mfv is includible in her gross_estate under sec_2036 on date more than two years after ms mirowski died mfv unintentionally forfeited its charter under maryland law because it failed to file required personal_property_tax returnsdollar_figure it was one of respondent’s employees who brought that forfeiture to the attention of mfv immediately thereafter steps were taken to reinstate the charter under maryland law which included filing a personal_property_tax return on behalf of mfv with the state of maryland for each of the year sec_2002 through on date the department of assessments and taxation of maryland issued a certificate of good standing to transact business to mfv thereby reinstating its charter under maryland law the reinstatement of a forfeited charter is retro- active to the date of forfeiture as a result a company subject_to maryland law is treated as if the forfeiture never occurred since mfv’s charter was reinstated in date mfv has remained in good standing under maryland law and has filed 39since its formation in mfv did not hold any personal_property within the state of maryland personal_property returns required by the state of maryland opinion the issues remaining for decision are whether any of the assets owned by mfv are includible in decedent’s gross_estate under sec_2036 sec_2038 or sec_2035 respondent does not address the burden_of_proof in this casedollar_figure according to decedent’s estate generally for issues or theories put forth by respon- dent in the notice_of_deficiency the taxpayer bears the burden_of_proof and for respondent’s issues or theories not included in the notice_of_deficiency respondent bears the burden_of_proof because respondent did not raise sec_2038 and sec_2035 in its notice_of_deficiency in this case respondent bears the burden with respect to its theories under those sections however in any case the evidence will not support a decision in respondent’s favor neither party addresses sec_7491 we conclude that resolution of the issues presented under sec_2036 sec_2038 and sec_2035 does not depend on who has the burden_of_proof 40with respect to sec_2036 respondent asserts on brief the burden of disproving the existence of an agreement regarding retained economic enjoyment of the transferred property rests on the estate and this burden has been characterized as particularly onerous in intrafamily situations citations omitted sec_2036 in order to resolve the parties’ dispute under sec_2036 we must consider the following factual issues with respect to ms mirowski’s transfers to mfv and with respect to her respective gifts of 16-percent interests in mfv to her daughters’ trusts was there a transfer of property by ms mirowski if there was a transfer of property by ms mirowski was such a transfer not a bona_fide sale for an adequate_and_full_consideration in money or money’s worth if there was a transfer of property by ms mirowski that was not a bona_fide sale for an adequate_and_full_consideration in money or money’s worth a did ms mirowski retain the sec_2036 provides 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 ascer- tainable 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 possession or the enjoyment of or the right to the income from the property transferred within the meaning of sec_2036 or b did she retain either alone or in conjunction with any person the right to designate the persons who shall possess or enjoy the property transferred or the income therefrom within the meaning of sec_2036 ms mirowski’s transfers to mfv transfer of property by ms mirowski decedent’s estate acknowledges that ms mirowski made transfers of property to mfv on september and in light of that acknowledgment by decedent’s estate we find that ms mirowski’s transfers to mfv were transfers of property under sec_2036 transfer other than a bona_fide sale for an adequate_and_full_consideration in money or money’s worth sec_2036 excepts from its application any transfer of property otherwise subject_to that section which is a bona_fide sale for an adequate_and_full_consideration in money or money’s worth the foregoing exception is limited to a transfer of property where the transferor has received benefit in full consideration in a genuine arm’s length transaction 17_tc_495 more re- cently we held that the exception in sec_2036 for a bona_fide sale for an adequate_and_full_consideration in money or money’s worth is satisfied in the context of a family limited_partnership where the record establishes the existence of a legiti- mate and significant nontax reason for creating the family limited_partnership and the transferors re- ceived partnership interests proportionate to the value of the property transferred see eg estate of stone v commissioner t c memo the objective evidence must indicate that the nontax reason was a significant factor that motivated the partnership’s creation a significant purpose must be an actual motivation not a theoretical justification certain citations omitted 124_tc_95 it is the position of decedent’s estate that ms mirowski’s transfers to mfv were bona_fide sales for adequate_and_full_consideration in money or money’s worth under sec_2036 in support of that position decedent’s estate contends that ms mirowski had legitimate and substantial nontax purposes for forming and transferring assets to mfv that ms mirowski received an interest in mfv proportionate to the value of the assets that she transferred to it that ms mirowski’s capital_account was properly credited with those assets and that in the event of a liquidation and dissolution of mfv ms mirowski had the right to a distribution_of_property from mfv in accordance with her capital_account respondent counters that the exception under sec_2036 for a bona_fide sale for an adequate_and_full_consideration in money or money’s worth does not apply to ms mirowski’s transfers to mfv in support of that position respondent contends that there was no legitimate significant nontax reason for ms mirowski’s forming and transferring assets to mfv in advanc- ing that contention respondent asks the court to disregard the respective testimonies of ginat mirowski and ariella rosengard two of decedent’s three daughters and the personal representa- tives of decedent’s estate regarding the nontax reasons ms mirowski decided to form and fund mfv according to respondent the relationship of those witnesses to decedent and to decedent’s estate colored their respective testimoniesdollar_figure as the trier of 42in support of respondent’s argument that the court should disregard the respective testimonies of ginat mirowski and ariella rosengard regarding the nontax reasons ms mirowski formed and funded mfv respondent also maintains that those reasons are unsupported by any contemporaneous corroborating evidence and that the only contemporaneous evidence in the record regarding the reasons ms mirowski formed and funded mfv is mr silver’s date letter to ms mirowski which contradicts the respective testimonies of ginat mirowski and ariella rosengard and supports respondent’s position that ms mirowski did so for estate_tax reasons with respect to respondent’s assertion that there is no contemporaneous corroborating evidence supporting the nontax reasons for forming and funding mfv about which ginat mirowski and ariella rosengard testified as discussed below we found ginat mirowski and ariella rosengard to be completely candid sincere and credible and accorded controlling weight to their respective testimonies with respect to respondent’s assertion that the only contemporaneous evidence in the record regarding the reasons ms mirowski formed and funded mfv is mr silver’s date letter to ms mirowski which contradicts the respective testimo- nies of ginat mirowski and ariella rosengard and supports respon- dent’s position that ms mirowski did so for estate_tax reasons respondent quotes the following sentence from mr silver’s date letter ‘we are beginning the process of implementing continued fact we disagree we evaluated the respective testimonies of ginat mirowski and ariella rosengard by observing each of those witnesses’ candor sincerity and demeanor we also evaluated the reason- ableness of the respective testimonies of those witnesses we found ginat mirowski and ariella rosengard to be completely candid sincere and credible and their respective testimonies to be reasonable we accorded controlling weight to the respective testimonies of ginat mirowski and ariella rosengard which we concluded was appropriate on the record before us we relied on those testimonies in making our findings_of_fact including our findings that ms mirowski had the following legitimate and significant nontax reasons for forming and transferring certain continued the estate plan which i recently discussed with you’ emphasis added what respondent ignores is that mr silver’s date letter enclosing final articles of organization and a final operating_agreement for mfv describes the matters discussed in that letter as business financial estate_planning matters respondent also ignores that mr silver’s date letter to ms mirowski enclosing draft articles of organization and a draft operating_agreement for mfv which were virtually identical to the final versions of those documents states that those drafts were undertaken in connection with financial and tax planning on behalf of ms mirowski and her family decedent’s estate does not deny and we have found on the record before us that ms mirowski understood that certain tax benefits could result from forming mfv however decedent’s estate maintains and we have found on that record that potential tax benefits were not the most significant factor in her decision to do so assets to mfv joint management of the family’s assets by her daughters and eventually her grandchildren maintenance of the bulk of the family’s assets in a single pool of assets in order to allow for investment opportunities that would not be 43we also found on the basis of the respective testimonies of ginat mirowski and ariella rosengard that another legitimate nontax reason ms mirowski formed and funded mfv was that she wanted to provide protection from potential creditors for the interests in the family’s assets that she intended to provide to her daughters and her grandchildren in addition to the creditor protection provided by her daughters’ trusts that as so-called spendthrift trusts were penetrable by creditors for purposes of alimony or child_support see zouck v zouck a 2d md safe deposit trust co v robertson a 2d md we found that ms mirowski’s desire for additional creditor protection was not a significant reason in her decision to form and fund mfv 44on the record before us we find that ms mirowski’s significant and legitimate nontax purpose in forming and funding mfv of ensuring joint management of the family’s assets by her daughters and eventually her grandchildren standing alone is sufficient to satisfy the requirement that in order to qualify for the exception in sec_2036 for a bona_fide sale for an adequate_and_full_consideration in money or money’s worth there must be a legitimate and significant nontax reason for creating the entity in question ms mirowski’s nontax reason in forming and funding mfv of ensuring joint management of the family’s assets by her daughters and eventually her grandchildren was rooted in ms mirowski’s formative years in lyon where she and her family worked together in the family business ms mirowski valued the family cohesiveness that joint management of a family business can foster although ms mirowski was aware that her daughter ariella rosengard would probably move to england with her husband and children ms mirowski wanted her daughters and eventually her grandchildren to work together remain closely knit and be jointly involved in managing the investments derived from the royalties received from dr mirowski’s invention of the icd and the business matters relating to the icd patents and the icd patents license agreement including the litigation arising with respect to those patents and that license agreement her daughters have done so available if ms mirowski were to make a separate gift of a portion of her assets to each of her daughters or to each of her daughters’ trusts and providing for each of her daughters and eventually each of her grandchildren on an equal basisdollar_figure in support of respondent’s position that the exception under sec_2036 for a bona_fide sale for an adequate_and_full_consideration in money or money’s worth does not apply to ms mirowski’s transfers to mfv respondent advances certain other contentions including the following ms mirowski failed to retain sufficient assets outside of mfv for her anticipated financial obligations respondent’s contention mfv lacked any valid functioning business operation respondent’s contention ms mirowski delayed forming and funding mfv until shortly before her death and her health had begun to fail respondent’s contention ms mirowski sat on both sides of ms mirowski’s transfers to mfv respondent’s contention 45ms mirowski’s formation of mfv and her lifetime_gift of an equal interest in it to each of her daughters’ trusts enabled ms mirowski to ensure that her daughters and eventually her grandchildren would continue to hold respective interests of equal worth in the bulk of the family’s assets respondent asserts that under 124_tc_95 facilitation of lifetime giving may never qualify as a significant nontax reason for forming and funding a family llc or a family_partnership we reject respon- dent’s assertion in estate of bongard we did not conclude that an intention to facilitate lifetime giving may never be a signif- icant nontax factor rather we found on the record presented there that such an intention was not a significant nontax reason for forming the partnership involved in that case id pincite and after ms mirowski died mfv made distributions totaling dollar_figure to decedent’s estate that that estate used to pay federal and state transfer_taxes legal fees and other estate obligations respondent’s contention dollar_figure according to re- spondent certain caselaw47 supports respondent’s view that the presence of the foregoing types of factors necessarily estab- lishes in the instant case the absence of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth under sec_2036 with respect to respondent’s contentions and those contentions are not supported by the record in this case and or ignore material facts that we have found on the basis of that record we reject those contentions with respect to respondent’s contention we have found that the only anticipated significant financial obligation of ms 46respondent also points out that mfv’s form_1065 for its taxable_year erroneously reported that the distributions that mfv made during that year were charged against its respec- tive members’ capital accounts on virtually a pro_rata basis the record does not disclose why that form contained that error in any event we do not find that error to be a material factor in our resolving the issues presented 47the caselaw on which respondent relies includes 471_f3d_848 8th cir affg tcmemo_2005_103 382_f3d_367 3d cir affg tcmemo_2002_246 estate of rosen v commissioner tcmemo_2006_115 estate of strangi v commis- sioner tcmemo_2003_145 affd on one ground only 417_f3d_468 5th cir estate of harper v commissioner tcmemo_2002_121 and estate of harrison v commissioner tcmemo_1987_8 mirowski when she formed and funded mfv was the substantial gift_tax for which she would be liable with respect to her contem- plated respective gifts of 16-percent interests in mfv to her daughters’ trusts we have also found that at no time before ms mirowski’s death did the members of mfv have any express or unwritten agreement or understanding to distribute assets of mfv in order to pay that gift_tax liability in order to pay the anticipated gift_tax liability with respect to her contemplated respective gifts of 16-percent interests in mfv to her daughters’ trusts ms mirowski could have used a portion of the over dollar_figure million of personal assets that she retained and did not transfer to mfv including cash and cash equivalents of over dollar_figure million used a portion or all of the distributions that she expected to receive as a 52-percent interest holder in mfv of the millions of dollars of royalty payments under the icd patents license agreement that she expected mfv to receive and borrowed against a the personal assets that she retained and did not transfer to mfv and b her 52-percent interest in mfv see md code ann corps assns sec_4a-602 west 48under applicable maryland law the interest of a member in an llc constitutes personal_property md code ann corps assns sec_4a-602 west and the term security_interest is defined as an interest in personal_property that secures payment or performance of an obligation md code ann com law sec west thus under applicable maryland law a member of an llc may grant an interest in that member’s inter- est in the llc in order to secure payment of a loan md code ann com law sec west with respect to respondent’s contention we have also found that at no time before date when ms mirowski’s condition unexpectedly deteriorated significantly did ms mirowski her daughters or her physicians expect her to die and that consequently at no time did ms mirowski and her daugh- ters discuss or anticipate the estate_tax and similar transfer_taxes and the other estate obligations that would arise only as a result of ms mirowski’s deathdollar_figure with respect to respondent’s contention we have found that at all relevant times including after ms mirowski’s death mfv has been a valid functioning investment operation and has been managing the business matters relating to the icd patents and the icd patents license agreement including related litiga- 49the estate_tax that would arise only as a result of ms mirowski’s death would not have been the obligation of ms mirowski the estate_tax is imposed on the transfer of the taxable_estate of a person who dies sec_2001 and the liability for the payment of the estate_tax is imposed on the executor or other personal representative of the estate sec_2002 moreover unless the estate_tax is paid in full or becomes unenforceable by reason of the lapse of time the estate_tax generally shall be a lien upon the gross_estate of the decedent for years from the date of death except that such part of the gross_estate as is used for the payment of charges against the estate and expenses of its adminis- tration allowed by any court having jurisdiction thereof shall be divested of such lien sec_6324 tion moreover we reject the suggestion in respondent’s conten- tion that the activities of mfv had to rise to the level of a business under the federal_income_tax laws in order for the exception under sec_2036 for a bona_fide sale for an adequate_and_full_consideration in money or money’s worth to applydollar_figure with respect to respondent’s contention as discussed above with respect to respondent’s contention we have found that at no time before date when ms mirowski’s condition unexpectedly deteriorated significantly did ms mirowski her daughters or her physicians expect her to die and that consequently at no time did ms mirowski and her daughters discuss or anticipate the estate_tax and similar transfer_taxes and the other estate obligations that would arise only as a result of ms mirowski’s death we have also found that ms mirowski was being treated since date both at home and at johns hopkins hospital for a diabetic foot ulcer and that she was admitted to johns hopkins hospital on date for further treatment of that ulcer in addition we have found that at all times throughout the course of her treatment from date until date when ms mirowski’s condition unexpectedly deteriorated significantly the expectations of the 50see eg estate of stone v commissioner tcmemo_2003_309 members of the medical staff at that hospital who were responsi- ble for treating ms mirowski and the expectations of ms mirowski and her daughters were that the treatment of her foot ulcer would allow her to recover with respect to respondent’s contention that contention reads out of sec_2036 in the case of any single-member llc the exception for a bona_fide sale for an adequate_and_full_consideration in money or money’s worth that congress expressly prescribed when it enacted that statute respondent’s contention also ignores that ms mirowski fully funded mfv her daugh- ters’ trusts did not contribute any assets to that company instead each of those trusts was the recipient of a gift from ms mirowski consisting of a 16-percent interest in mfv we reject respondent’s contention with respect to respondent’s contention that contention ignores our findings that at no time before date when ms mirowski’s condition unexpectedly deteriorated signifi- cantly did ms mirowski her family or her physicians expect her to die and that consequently at no time did ms mirowski and her daughters discuss or anticipate the estate_tax and similar transfer_taxes and the other estate obligations that would arise only as a result of ms mirowski’s deathdollar_figure moreover we reject the suggestion of respondent that respondent’s contention i sec_51see supra note determinative in the instant case of whether ms mirowski’s transfers to mfv were bona_fide sales for adequate_and_full_consideration in money or money’s worth under sec_2036 with respect to respondent’s reliance on certain caselaw to support respondent’s view that the existence of the various alleged contentions advanced by respondent necessarily estab- lishes in the instant case the absence of a bona_fide sale for an adequate_and_full_consideration in money or money’s worth under sec_2036 we find the cases on which respondent relies to be factually distinguishable from the instant case and respon- dent’s reliance on them to be misplaceddollar_figure in support of respondent’s position that the exception under sec_2036 for a bona_fide sale for an adequate_and_full_consideration in money or money’s worth does not apply to ms mirowski’s transfers to mfv respondent also contends that because ms mirowski did not at any time contemplate forming and funding mfv without making respective gifts of 16-percent inter- ests in mfv to her daughters’ trusts ms mirowski in sub- stance received only a mfv interest in exchange for ms mirowski’s transfers to mfv of percent of its assets as a result according to respondent ms mirowski did not receive 52for example the court did not find in any of the cases on which respondent relies that there was a significant and legiti- mate nontax reason for the transfer involved to which the court held sec_2036 applied adequate_and_full_consideration in the form of a proportionate mfv interest on the record before us we reject respondent’s contention ms mirowski made two separate albeit integrally related transfers of property that are at issue in this case namely ms mirowski’s transfers to mfv of certain assets on september and and ms mirowski’s respective gifts of 16-percent interests in mfv to her daughters’ trusts on date in return for ms mirowski’s transfers to mfv ms mirowski received and held percent of the interests in mfv in return for ms mirowski’s respective gifts to her daughters’ trusts ms mirowski received and held nothingdollar_figure on the record before us we find that ms mirowski received an interest in mfv proportionate to the value of the assets that she transferred to it on september and on that record we also find that ms mirowski’s capital_account was properly credited with the assets that she transferred to it on september and and that in the event of a liquidation and dissolution of mfv ms mirowski had the right to a distribution_of_property from mfv in accordance with her capital_account 53decedent’s personal_representatives timely filed form_709 for on behalf of decedent in which those representatives reported ms mirowski’s gifts the parties have resolved their dispute relating to the total value of those gifts based upon our examination of the entire record before us we find that ms mirowski’s transfers to mfv were bona_fide sales for adequate_and_full_consideration in money or money’s worth under sec_2036 based upon that examination we further find that the exception under sec_2036 for a bona_fide sale for an adequate_and_full_consideration in money or money’s worth applies to ms mirowski’s transfers to mfv possession or enjoyment of or right to income from the property transferred or right to designate the persons who shall possess or enjoy the property transferred or the income from such property we have found that ms mirowski’s transfers to mfv were bona_fide sales for adequate_and_full_consideration in money or money’s worth under sec_2036 consequently we need not and we shall not address with respect to those transfers the factual issue presented under sec_2036 as to whether ms mirowski retained for life the possession or the enjoyment of or the right to the income from the property transferred or the factual issue presented under sec_2036 as to whether ms mirowski retained for life the right either alone or in conjunction with any person to designate who shall possess or enjoy the property transferred or the income therefrom based upon our examination of the entire record before us we hold that sec_2036 does not apply to ms mirowski’s transfers to mfv ms mirowski’s gifts transfer of property by ms mirowski decedent’s estate acknowledges that ms mirowski’s respec- tive gifts of 16-percent interests in mfv to her daughters’ trusts on date were transfers of property in light of that acknowledgment by decedent’s estate we find that ms mirowski’s gifts were transfers of property under sec_2036 transfer other than a bona_fide sale for an adequate_and_full_consideration in money or money’s worth decedent’s estate also acknowledges that ms mirowski’s gifts were not bona_fide sales for adequate and full consider- ation in money and money’s worth under sec_2036 in light of that acknowledgment by decedent’s estate we find that ms mirowski’s gifts were not bona_fide sales for adequate_and_full_consideration in money or money’s worth under sec_2036 possession or enjoyment of or right to income from the property transferred or right to designate the persons who shall possess or enjoy the property transferred or the income from such property the parties agree that an interest or a right described in sec_2036 and is treated as having been retained if at the time of the transfer of property there was an express or implied agreement or understanding that the interest or right would later be conferred see sec_20_2036-1 estate_tax regs they disagree over whether there was such an express or implied agreement or understanding at the time ms mirowski made respective gifts of 16-percent interests in mfv to her daughters’ trusts possession or enjoyment of or right to income from the property transferred it is the position of decedent’s estate that there was no understanding express or implied that decedent retained sic any interest in the mfv interests that had been transferred to the respective trusts for the benefit of decedent’s daughters and their issue decedent completed those gifts of mfv interests on date and thereafter had no right to receive and did not receive any benefit whatsoever from such interests moreover this case does not involve the kinds of facts that have led courts to find implied agreements that a decedent has retained an interest in the decedent-transferred property respondent counters that at the time of ms mirowski’s gifts and at the time of her death an agreement both express and implied existed that ms mirowski retain the possession or the enjoyment of or the right to the income from the respective percent interests in mfv that she gave to her daughters’ trustsdollar_figure in support of respondent’s contention that at the time of ms mirowski’s gifts and at the time of her death there was an 54as discussed below respondent advances the same conten- tion with respect to the respective 16-percent interests in mfv that ms mirowski gave to her daughters’ trusts in support of respondent’s argument under sec_2036 that ms mirowski retained the right to designate the persons who could possess or enjoy the assets or the income therefrom during her lifetime express agreement that ms mirowski retain an interest or a right described in sec_2036 with respect to the respective 16-percent interests in mfv that she gave to her daughters’ trusts respondent asserts decedent was designated mfv’s general manager at the time of its formation and continued to be its general manager until the time of her death mfv’s operating_agreement section as general manager decedent had sole and exclusive au- thority to manage mfv’s affairs mfv’s operating_agreement section her authority included the authority to decide the timing and amounts of distributions from mfv mfv’s operating agree- ment section decedent could not be re- moved and replaced as general manager because even after the gifts to the daughters’ trusts she still held a majority interest mfv’s operating_agreement section thus when decedent formed and funded mfv and at her death she expressly retained sic the right to possession or enjoyment of or the right to the income from the transferred assets the linchpin in respondent’s argument that at the time of ms mirowski’s gifts and at the time of her death ms mirowski expressly retained the right to the possession or the enjoyment of or the right to the income from the respective 16-percent interests in mfv that she gave to her daughters’ trusts is that under sec_4 of mfv’s operating_agreement her authority as mfv’s general manager included the authority to decide the timing and amounts of distributions from mfv before addressing respondent’s contention regarding sec_4 of mfv’s operat- ing agreement we shall describe the authority that ms mirowski had as mfv’s general manager under that agreement pursuant to sec_5 of mfv’s operating_agreement mfv was to be managed by a general manager and the initial general manager was to be ms mirowski sec_5 of mfv’s operating_agreement provided the general manager shall have full exclusive and complete discretion power and authority subject in all cases to the other provisions of this agreement and the requirements of applicable law to manage control administer and operate the business and affairs of the company for the purposes herein stated and to make all decisions affecting such business and affairs on the record before us we find that pursuant to sec_5 of mfv’s operating_agreement ms mirowski’s discretion power and authority as mfv’s general manager were subject_to the other provisions of mfv’s operating_agreement including sec_4 regarding the distribution of cash_flow and the allocation of profit or loss from transactions other than capital transac- tions sec_4 regarding the distribution of capital proceeds and the allocation of profit or loss from capital_transactions sec_4 regarding the distribution of mfv’s assets upon the liquidation and dissolution of mfv sec_55mfv’s operating_agreement expressly listed in sec_5 various powers including the following that were among the powers of mfv’s general manager subject in all cases to the other provisions of that operating_agreement and the requirements of applicable law acquire by purchase lease or otherwise any real or personal_property sell dispose_of trade or exchange mfv’s assets in the ordinary course of mfv’s business borrow money for and on behalf of mfv enter into any kind of activity necessary to in connection with or incidental to the accom- plishment of the purposes of mfv and invest and reinvest mfv reserves in short-term instruments or money market funds regarding extraordinary_transactions section re- garding events resulting in the dissolution of mfv and section regarding the procedure for winding up and dissolving mfv on that record we further find that pursuant to sec_5 of mfv’s operating_agreement ms mirowski’s discretion power and authority as mfv’s general manager were subject_to the requirements of applicable maryland law including the maryland law that imposed on her fiduciary duties to the other members of mfv namely her daughters’ trust sec_56 to which she made respective gifts of 16-percent interests in mfvdollar_figure see 173_fsupp2d_419 d md 96_fsupp2d_507 d md affd per curiam sub nom 5_fedappx_287 4th cir on the record before us we find that the discretion power and authority that mfv’s operating_agreement granted to ms mirowski as mfv’s general manager do not require us to find that at the time of ms mirowski’s gifts and at the time of her death there was an express agreement that ms mirowski retain an 56ms mirowski held no powers over her daughters’ trusts ms mirowski’s daughters as the trustees of each of the daugh- ters’ trusts were subject_to the fiduciary duties imposed on them by maryland law see eg madden v mercantile-safe deposit trust co a 2d md ct spec app 57we find nothing in the record that establishes that ms mirowski intended to or did violate her fiduciary duties under maryland law interest or a right described in sec_2036 or sec_2036 with respect to the respective 16-percent interests in mfv that she gave to her daughters’ trusts we turn now to the linchpin in respondent’s contention that at the time of ms mirowski’s gifts and at the time of her death there was an express agreement in sec_4 of mfv’s operat- ing agreement that ms mirowski retain an interest or a right described in sec_2036 with respect to the respective 16-percent interests in mfv that she gave to her daughters’ trusts according to respondent under sec_4 of mfv’s operating_agreement as mfv’s general manager ms mirowski’s authority included the authority to decide the timing and amounts of distributions from mfv that section of mfv’s operating_agreement provides except as otherwise provided in this agreement the timing and amount of all distributions shall be determined by the members holding a majority of the percent- ages then outstanding contrary to respondent’s contention sec_4 of mfv’s operating_agreement did not give ms mirowski as mfv’s general manager the authority to determine the timing and the amount of all distributions from mfv any authority that ms mirowski had under that section was in her capacity as the member of mfv who owned a majority of the outstanding percentage interests in mfv 58see supra note majority percentage member of mfv moreover any authority that sec_4 of mfv’s operating_agreement gave ms mirowski as the majority percentage member of mfv did not include the authority to determine the timing and the amount of distributions from mfv where that agreement otherwise provided that agree- ment otherwise provided in inter alia sec_4 and pursuant to sec_4 of mfv’s operating_agreement ms mirowski had no authority as the majority percentage member of mfv or as mfv’s general manager to determine for each taxable_year the distribution of mfv’s cash_flow ie cash funds derived in the ordinary course of mfv’s operations or the allocation of mfv’s profit or loss from the ordinary course of mfv’s operations with respect to the distribution of mfv’s cash_flow sec_4 of mfv’s operating_agreement provided that cash_flow for each taxable_year shall be distributed to the interest holders no later than seventy-five days after the end of the taxable_year sec_4 of mfv’s operating_agreement is unequivocal in mandating the distribution of mfv’s cash_flow no later than days after the end of a taxable_year sec_4 of mfv’s operating_agreement required for each taxable_year the allocation of profit or loss from the ordinary course of mfv’s operations and the distribution of mfv’s cash_flow to mfv’s interest holders in proportion to their respective percentage interests in mfv pursuant to sec_4 of mfv’s operating_agreement ms mirowski had no authority as the majority percentage member of mfv or as mfv’s general manager to determine the distribution of mfv’s capital proceeds ie gross_receipts from a capital_transaction namely a transaction not in the ordinary course of mfv’s operations or the allocation of profit or loss from any capital transactiondollar_figure with respect to the distribution of mfv’s capital proceeds sec_4 of mfv’s operating_agreement provided that capital proceeds shall be distributed and applied by the company as specified in that sectiondollar_figure sec_4 of mfv’s operating_agreement is unequivocal in mandating the distri- bution and application of mfv’s capital proceeds as specified in that section in an attempt to qualify the unequivocal words of sec_4 of mfv’s operating_agreement mandating the distribution of mfv’s capital proceeds respondent attempts to inflate the 60pursuant to sec_5 and of mfv’s operating_agreement ms mirowski did not have the authority as mfv’s general manager or as the majority percentage member of mfv to undertake inter alia a capital_transaction the only type of transaction under that operating_agreement giving rise to capital proceeds unless all of mfv’s members approved sec_4 of mfv’s operating_agreement required the allocation of profit or loss from any mfv capital_transaction and the distribution of mfv’s capital proceeds to mfv’s interest holders in proportion to their respective capital accounts respondent does not dispute that in general the respective capital_account balances of mfv’s interest holders matched those interest holders’ respective percentage interests in mfv significance of the language no later than seventy-five days after the end of the taxable_year appearing in sec_4 of mfv’s operating_agreement that mandates the distribution of mfv’s cash_flow we reject respondent’s reliance on that language to change the unequivocal words of sec_4 of mfv’s operating_agreement mandating the distribution of mfv’s capital proceeds sec_4 of mfv’s operating_agreement governs the distribution of mfv’s cash_flow for each taxable_year of mfv thus that section cannot be implemented until a taxable_year of mfv has ended it is only after the end of a taxable_year that cash_flow and profit or loss from the ordinary course of mfv’s operations for the taxable_year may be computed allocated and distributed as required by sec_4 of mfv’s operating agree- ment sec_4 of mfv’s operating_agreement ensures that there will be enough time after the end of each taxable_year but no more than days after the end of each such year within which to make the computations allocations and distributions for each such taxable_year required by sec_4 of mfv’s operating_agreement there was no reason to add similar language to sec_4 of mfv’s operating_agreement that is because the term capital proceeds is defined in section i of mfv’s operat- ing agreement as the gross_receipts received by the company from a capital_transaction as soon as each capital_transaction of mfv is undertaken sec_4 of mfv’s operating_agreement requires the allocation of profit or loss and the distribution and the application of capital proceeds from that capital trans- action as specified in that section on the record before us we find that sec_4 of mfv’s operating_agreement did not give ms mirowski as the majority percentage member of mfv or as mfv’s general manager the authority to determine the timing and the amount of distributions of mfv’s cash_flow and mfv’s capital proceedsdollar_figure on that record 62in so finding we have considered respondent’s contention that ms mirowski had by implication the power to determine the respective amounts of mfv’s cash_flow and mfv’s capital proceeds to be distributed according to respondent mfv’s operating_agreement sec_4 which states that the amount of capital proceeds to be distributed is to be reduced by any reserves which the general manager deems necessary for liabilities or obligations of the company gives decedent the power to determine the amount of such reserves and by implica- tion the amount of such distributions mfv’s operat- ing agreement sec_1 defines cash_flow and gives decedent a similar power to pay or establish reasonable reserves for future expenses debt payments capital improvements or replacements and thereby the amount of distributable cash_flow ms mirowski’s authority as mfv’s general manager to estab- lish reserves was limited to establishing reserves for mfv’s liabilities and obligations and future expenses debt payments capital improvements and replacements moreover ms mirowski’s authority as mfv’s general manager to establish the types of reserves in question was subject_to the fiduciary duties imposed on her by maryland law see 173_fsupp2d_419 d md 96_fsupp2d_507 d md affd per curiam sub nom froelich v senior campus living l l c fed appx continued we further find that sec_4 of mfv’s operating_agreement did not give ms mirowski as the majority percentage member of mfv or as mfv’s general manager the authority to determine the timing and the amount of distributions upon the liquidation and dissolution of mfvdollar_figure on the record before us we find that at the time of ms mirowski’s gifts and at the time of her death there was no express agreement in mfv’s operating_agreement or elsewhere that ms mirowski retain the possession or the enjoyment of or the right to the income from the respective 16-percent interests in mfv that she gave to her daughters’ trusts continued 4th cir we find nothing in the record that shows that ms mirowski intended to establish or would have estab- lished the reserves in question in violation of those duties on the record before us we conclude that ms mirowski’s author- ity as mfv’s general manager to establish reserves as specified in mfv’s operating_agreement did not give ms mirowski an inter- est or a right described in sec_2036 or sec_2036 sec_4 of mfv’s operating_agreement provides that if mfv were to be liquidated its assets shall be distributed to the interest holders in accor- dance with the balances in their respective capital accounts after taking into account the allocations of profit or loss pursuant to sec_4 or if any and distributions if any of cash or property if any pursuant to sec_4 and of mfv’s operating_agreement we conclude that sec_4 of mfv’s operating_agreement merely served as a backstop to the other sections of mfv’s operating_agreement that controlled the timing and the amount of distributions by mfv in support of respondent’s contention that at the time of ms mirowski’s gifts and at the time of her death there was an implied agreement that ms mirowski retain an interest or a right described in sec_2036 with respect to the respective 16-percent interests in mfv that she gave to her daughters’ trusts respondent relies on essentially the same contentions on which respondent relies in support of respondent’s argument that ms mirowski’s transfers to mfv were not bona_fide sales for adequate_and_full_consideration in money or money’s worth under sec_2036 we have considered and rejected those conten- tions for the reasons stated above we reject respondent’s contentions here in determining whether at the time of ms mirowski’s gifts and at the time of her death there was an implied agreement that she retain an interest or a right de- scribed in sec_2036 with respect to the respective percent interests in mfv that she gave to her daughters’ trusts we shall however address again what respondent considers to be of particular significance in our determining whether at the time of ms mirowski’s gifts and at the time of her death there was an implied agreement that she retain an interest or a right described in sec_2036 with respect to the respec- tive 16-percent interests in mfv that she gave to her daughters’ trusts namely during mfv distributed dollar_figure to decedent’s estate which that estate used to pay federal and state transfer_taxes legal fees and other estate obligationsdollar_figure as discussed above we have found that the only anticipated signifi- cant financial obligation of ms mirowski when she formed and funded mfv and when she made the respective gifts to her daugh- ters’ trusts was the substantial gift_tax for which she would be liable with respect to those gifts we have also found that at no time before ms mirowski’s death did the members of mfv have any express or unwritten agreement or understanding to distribute assets of mfv in order to pay that gift_tax liability in order to pay the anticipated gift_tax liability with respect to her contemplated respective gifts of 16-percent interests in mfv to her daughters’ trusts ms mirowski could have used a portion of the over dollar_figure million of personal assets that she retained and did not transfer to mfv including cash and cash equivalents of over dollar_figure million used a portion or all of the distributions that she expected to receive as an interest holder in mfv of the millions of dollars of royalty payments under the icd patent sec_64included in the federal and state transfer_taxes was dollar_figure that decedent’s personal_representatives paid in date as the estimated gift_tax liability with respect to ms mirowski’s respective gifts of 16-percent interests in mfv to her daughters’ trusts in date those representatives filed on behalf of ms mirowski the form_709 that showed actual gift_tax liability for of dollar_figure resulting in a credit to decedent’s estate respondent determined a deficiency in ms mirowski’s gift_tax for attributable to the value of each of ms mirowski’s gifts the parties have resolved their dispute as to the gift_tax of ms mirowski for see supra note sec_1 and license agreement that she expected mfv to receive and borrowed against a the personal assets that she retained and did not transfer to mfv and b her 52-percent interest in mfv see md code ann corps assns sec_4a-602 west md code ann com law sec west in addition as also discussed above we have found that at no time before date when ms mirowski’s condition unexpectedly deteriorated significantly did ms mirowski her daughters or her physicians expect her to die and that conse- quently at no time did ms mirowski and her daughters discuss or anticipate the estate_tax and similar transfer_taxes and the other estate obligations that would arise only as a result of ms mirowski’s deathdollar_figure in after ms mirowski died mfv distributed over dollar_figure million to decedent’s estate in order for the estate to pay federal and state transfer_taxes legal fees and other estate obligations at the time in when mfv made those distribu- tions to decedent’s estate mfv’s members ie the daughters’ trusts through their respective trustees ie ms 65see supra note 66as discussed supra note the estate_tax that would arise only as a result of ms mirowski’s death would not have been the obligation of ms mirowski 67the daughters’ trusts were the remaining members of mfv after ms mirowski’s death mirowski’s daughters agreed and decided that mfv should not make distributions to themdollar_figure in making that decision mfv’s members had in mind that those members will own collectively percent of mfv in three equal shares after decedent’s estate is closed on the record before us we conclude that the decision by mfv’s members after ms mirowski died to have mfv distribute during over dollar_figure million to decedent’s estate which the estate used to pay federal and state transfer_taxes legal fees and other estate obligations is not determinative in the instant case of whether at the time of ms mirowski’s gifts and at the time of her death there was an implied agreement that ms mirowski retain an interest or a right described in sec_2036 with respect to the respective 16-percent interests in mfv that she gave to her daughters’ trusts on the record before us we find that at the time of ms mirowski’s gifts and at the time of her death there was no implied agreement or understanding that ms mirowski retain the possession or the enjoyment of or the right to the income from the respective 16-percent interests in mfv that she gave to her daughters’ trusts 68in other words mfv’s members ie the daughters’ trusts agreed and decided that during mfv should not make pro_rata distributions to all of the interest holders of mfv based upon our examination of the entire record before us we find that at the time of ms mirowski’s gifts and at the time of her death ms mirowski did not retain the possession or the enjoyment of or the right to the income from the 16-percent interests in mfv that she gave to her daughters’ trusts within the meaning of sec_2036 right to designate the persons who shall possess or enjoy the property transferred or the income from such property it is the position of decedent’s estate that ms mirowski did not retain a right described in sec_2036 with respect to the respective 16-percent interests in mfv that she gave to her daughters’ trusts respondent counters with the approval of the daughters now the other interest holders decedent had the authority to dispose_of assets in other than the ordinary course of business mfv’s operating_agreement sec_5 as the holder of a majority of the mfv interests decedent alone held the power to determine the timing of the distribution of the capital_transaction proceeds mfv’s operating_agreement sec_4 thus after the transfer of the three percent interests decedent held the right in conjunction with her daughters to designate the person or persons who shall possess or enjoy the proceeds of the transferred property within the meaning of sec_2036 with the result that the assets transferred to mfv are includible in the gross_estate before addressing the linchpin in respondent’s argument under sec_2036 we reject respondent’s contention that ms mirowski’s daughters were members of mfv after ms mirowski’s gifts after those gifts the daughters’ trusts and not ms mirowski’s daughters were members of mfvdollar_figure we turn now to the linchpin in respondent’s argument under sec_2036 namely under sec_4 of mfv’s operating_agreement ms mirowski alone held the power to determine the timing of the distribution of the capital_transaction proceeds we have considered and rejected that contention when we addressed respondent’s argument under sec_2036 with respect to ms mirowski’s gifts for the reasons stated above we reject respondent’s contention here in determining whether at the time of ms mirowski’s gifts and at the time of her death ms mirowski retained a right described in sec_2036 with respect to the respective 16-percent interests in mfv that she gave to her daughters’ trusts based upon our examination of the entire record before us we find that at the time of ms mirowski’s gifts and at the time of her death ms mirowski did not retain either alone or in conjunction with any person the right to designate the persons who shall possess or enjoy the respective 16-percent interests in mfv that she gave to her daughters’ trusts or the income from such interests within the meaning of sec_2036 based upon our examination of the entire record before us we hold that sec_2036 does not apply to ms mirowski’s 69see supra note respective gifts of 16-percent interests in mfv to her daughters’ trusts sec_2038 in order to resolve the parties’ dispute under sec_2038 we must consider the following factual issues with respect to ms mirowski’s transfers to mfv and with respect to ms mirowski’s gifts was there a transfer of property by ms mirowski if there was a transfer of property by ms mirowski was such a transfer not a bona_fide sale for an adequate_and_full_consideration in money or money’s worth sec_2038 provides sec_2038 revocable transfers a in general --the value of the gross_estate shall include the value of all property-- transfers after date --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 where the enjoyment thereof was subject at the date of his death to any change through the exercise of a power in whatever capacity exercisable by the decedent alone or by the decedent in conjunction with any other person without regard to when or from what source the decedent acquired such power to alter amend revoke or terminate or where any such power is relinquished during the 3-year period ending on the date of the decedent’s death if there was a transfer of property by ms mirowski that was not a bona_fide sale for an adequate_and_full_consideration in money or money’s worth a at the time of her death was the enjoyment of the property transferred subject_to any change through the exercise of a power by ms mirowski alone or in conjunction with any other person to alter amend revoke or terminate within the meaning of sec_2038 or b did ms mirowski relinquish any such power during the three-year period ending on the date of her death within the meaning of that section ms mirowski’s transfers to mfv transfer of property by decedent as discussed above decedent’s estate acknowledges that ms mirowski made transfers of assets to mfv on september and in light of that acknowledgment by decedent’s estate we find that ms mirowski’s transfers to mfv were transfers of property under sec_2038 sec_2038 does not apply if the decedent’s power could be exercised only with the consent of all parties having an interest vested or contingent in the transferred property and if the power adds nothing to the rights of the parties under local law sec_20_2038-1 estate_tax regs transfer other than a bona_fide sale for an adequate_and_full_consideration in money or money’s worth like sec_2036 sec_2038 excepts from its application any transfer of property otherwise subject_to that section which is a bona_fide sale for an adequate_and_full_consideration in money or money’s worth the respective exceptions in sec_2036 and sec_2038 have the same meaning based upon our examination of the entire record before us and for the reasons stated above with respect to our finding that ms mirowski’s transfers to mfv were bona_fide sales for adequate_and_full_consideration in money or money’s worth under sec_2036 we find that ms mirowski’s transfers to mfv were bona_fide sales for adequate_and_full_consideration in money or money’s worth under sec_2038 based upon that examination and for those reasons we further find that the exception under sec_2038 for a bona_fide sale for an adequate_and_full_consideration in money or money’s worth applies to ms mirowski’s transfers to mfv power to alter amend revoke or terminate the enjoyment of the property transferred or relinquishment of any such power during the three-year period ending on the date of death we have found that ms mirowski’s transfers to mfv were bona_fide sales for adequate_and_full_consideration in money or money’s worth under sec_2038 consequently we need not and we shall not address the factual issues presented under sec_2038 as to whether at the time of ms mirowski’s death the enjoyment of the property transferred was subject_to any change through the exercise of a power by ms mirowski alone or in conjunction with any other person to alter amend revoke or terminate or whether ms mirowski relinquished any such power during the three-year period ending on the date of her death based upon our examination of the entire record before us we hold that sec_2038 does not apply to ms mirowski’s transfers to mfv ms mirowski’s gifts transfer of property by ms mirowski as discussed above decedent’s estate acknowledges that ms mirowski’s respective gifts of 16-percent interests in mfv to her daughters’ trusts on date were transfers of property in light of that acknowledgment by decedent’s estate we find that ms mirowski’s gifts were transfers of property under sec_2038 transfer other than a bona_fide sale for an adequate_and_full_consideration in money or money’s worth decedent’s estate also acknowledges that ms mirowski’s gifts were not bona_fide sales for adequate_and_full_consideration in money or money’s worth under sec_2038 in light of that acknowledgment by decedent’s estate we find that ms mirowski’s gifts were not bona_fide sales for adequate_and_full_consideration in money or money’s worth under sec_2038 power to alter amend revoke or terminate the enjoyment of the property transferred or relinquishment of any such power during the three-year period ending on the date of death power to alter amend revoke or terminate the enjoyment of the property transferred it is the position of decedent’s estate that at no time was the enjoyment of the respective 16-percent interests that ms mirowski gave to her daughters’ trusts subject_to change through the exercise of a power by ms mirowski to alter amend revoke or terminate respondent counters that after ms mirowski’s respective gifts of 16-percent interests in her daughters’ trusts with the approval of the other interest holders the daughters decedent had the authority to dispose_of assets in other than the ordinary course of business mfv’s operating_agreement sec_5 as the holder of a majority of the mfv interests decedent alone held the power to determine the timing of the distribution of the capital_transaction proceeds mfv’s operating_agreement sec_4 thus after the transfer of the three percent interests decedent held the power in conjunction with her daughters to affect the time or manner of enjoyment of the transferred property within the meaning of sec_2038 with the result that despite the gifts the assets transferred to mfv are includible in the gross_estate as decedent retained this power until her death there is no need to discuss the application of the three-year_rule of section a 72we reject here as we did above respondent’s contention that after ms mirowski’s gifts her daughters and not her daughters’ trusts were members of mfv in support of respondent’s argument under sec_2038 respondent relies on essentially the same contentions on which respondent relies in support of respondent’s argument under sec_2036 we considered and rejected those contentions when we addressed respondent’s argument under sec_2036 for the reasons stated above we reject respondent’s contentions here in determining whether at the time of ms mirowski’s death ms mirowski held the power to alter amend revoke or terminate the enjoyment of the respective 16-percent interests in mfv that she gave to her daughters’ trusts based upon our examination of the entire record before us we find that at no time including at the time of ms mirowski’s death was the enjoyment of the respective 16-percent interests in mfv that ms mirowski gave to her daughters’ trusts subject_to any change through the exercise of a power by her alone or in conjunction with any other person to alter amend revoke or terminate within the meaning of sec_2038 relinquishment during the three-year period ending on the date of death of a power to alter amend revoke or terminate the enjoyment of the property transferred we have found that at no time including at the time of ms mirowski’s death was the enjoyment of the respective 16-percent interests in mfv that ms mirowski gave to her daughters’ trusts subject_to any change through the exercise of a power by her alone or in conjunction with any other person to alter amend revoke or terminate within the meaning of sec_2038 a fortiori ms mirowski could not have relinquished and we find on the record before us that she did not relinquish any such power during the three-year period ending on the date of her death within the meaning of that section based upon our examination of the entire record before us we hold that sec_2038 does not apply to ms mirowski’s respective gifts of 16-percent interests in mfv to her daughters’ trusts sec_2035 in order to resolve the parties’ dispute under sec_2035 we must consider the following issues with respect to sec_2035 provides sec_2035 adjustments for certain gifts made within years of decedent’s death a inclusion of certain property in gross_estate --if-- the decedent made a transfer by trust or otherwise of an interest in any property or relinquished a power with respect to any property during the 3-year period ending on the date of the decedent’s death and the value of such property or an interest herein would have been included in the decedent’s gross_estate under sec_2036 sec_2037 sec_2038 or sec_2042 if such transferred interest or relinquished power had been retained by the decedent on the date of his death the value of the gross_estate shall include the value of any property or interest therein which would have continued ms mirowski’s respective gifts of 16-percent interests in mfv to her daughters’ trusts was there a transfer of property by ms mirowski during the three-year period ending on the date of her death if there was a transfer of property by ms mirowski during the three-year period ending on the date of her death would the value of any such property have been included in her gross_estate under sec_2036 or if the property transferred by ms mirowski had been retained by her on the date of her death transfer of property during the three-year period ending on the date of death decedent’s estate acknowledges that ms mirowski’s respective gifts of 16-percent interests in mfv to her daughters’ trusts on date were transfers of property during the three-year period ending on the date of her death in light continued been so included 74in advancing respondent’s alternative argument under sec_2035 respondent does not assert that during the three-year period ending on the date of ms mirowski’s death ms mirowski relinquished a power with respect to the respective 16-percent interests in mfv that she gave to her daughters’ trusts therefore our discussion of sec_2035 is limited to ms mirowski’s gifts 75in advancing respondent’s alternative argument under sec_2035 respondent does not assert that ms mirowski’s transfers to mfv are includible in her gross_estate under sec_2037 or sec_2042 therefore our discussion of sec_2035 is limited to sec_2036 and sec_2038 of that acknowledgment by decedent’s estate we find that ms mirowski’s gifts were transfers of property during the three-year period ending on the date of her death under sec_2035 property transferred otherwise includible in gross_estate we have found that sec_2036 and sec_2038 do not apply to ms mirowski’s transfers to mfv a fortiori sec_2035 could not apply and we hold that that section does not apply to ms mirowski’s respective gifts of 16-percent interests in mfv to her daughters’ trusts based upon our examination of the entire record before us and our holdings under sec_2036 and sec_2038 with respect to ms mirowski’s transfers to mfv we hold that sec_2035 does not apply to ms mirowski’s respective gifts of percent interests in mfv to her daughters’ trusts we have considered all of the parties’ respective contentions and arguments that are not discussed herein and we find them to be without merit irrelevant and or moot to reflect the foregoing and the concessions of the parties decision will be entered under rule appendix mfv’s operating_agreement provided in pertinent part section i defined terms adjusted capital balance means as of any day an interest holder’s total capital contributions less all amounts actually distributed to the interest holder pursuant to sec_4 and hereof if any interest is transferred in accordance with the terms of this agreement the transferee shall succeed to the adjusted capital balance of the transferor to the extent the adjusted capital balance relates to the interest transferred capital_account means the account to be maintained by the company for each interest holder in accordance with the following provisions i an interest holder’s capital_account shall be credited with the interest holder’s capital contributions the amount of any company liabilities assumed by the interest holder or which are secured_by company property distributed to the interest holder the interest holder’s allocable share of profit and any item in the nature of income or gain specially allocated to the interest holder pursuant to the provisions of section iv other than sec_4 and ii an interest holder’s capital_account shall be debited with the amount of money and the fair_market_value of any company property distributed to the interest holder the amount of any liabilities of the interest holder assumed by the company or which are secured_by property contributed by the interest holder to the company the interest holder’s allocable share of loss and any item in the nature of expenses or losses specially allocated to the interest holder pursuant to the provisions of section iv other than sec_4 if any membership interest is transferred pursuant to the terms of this agreement the transferee shall succeed to the capital_account of the transferor to the extent the capital_account is attributable to the transferred membership interest if the book_value of company property is adjusted pursuant to sec_4 the capital_account of each membership interest holder shall be adjusted to reflect the aggregate adjustment in the same manner as if the company had recognized a gain_or_loss equal to the amount of such aggregate adjustment it is intended that the capital accounts of all interest holders shall be maintained in compliance with the provisions of regulation sec_1_704-1 and all provisions of this agreement relating to the maintenance of capital accounts shall be interpreted and applied in a manner consistent with that regulation capital_contribution means that total amount of cash and the fair_market_value of any other assets contributed or deemed contributed under regulation sec_1_704-1 to the company by a member net of liabilities assumed or to which the assets are subject capital proceeds means the gross_receipts received by the company from a capital_transaction capital_transaction means any transaction not in the ordinary course of business which results in the company’s receipt of cash or other consideration other than capital contributions including without limitation proceeds of sales or exchanges or other dispositions of property not in the ordinary course of business financings refinancings condemnations recoveries of damage awards and insurance proceeds cash_flow means all cash funds derived from operations of the company including interest received on reserves without reduction for any non-cash charges but less cash funds used to pay current operating_expenses and to pay or establish reasonable reserves for future expenses debt payments capital improvements or replacements as determined in the sole discretion of the general manager cash_flow shall not include capital proceeds but shall be increased by the reduction of any reserve previously established interest holder means any person who holds a membership interest whether as a member or as an unadmitted assignee of a member member means each person signing this agreement and any person who subsequently is admitted as a member of the company negative capital_account means a capital_account with a balance of less than zero positive capital_account means a capital_account with a balance greater than zero members capital capital accounts section iii return_of_capital contributions except as otherwise provided in this agreement no interest older shall have the right to receive the return of any capital_contribution form of return_of_capital if an interest holder is entitled to receive a return of a capital_contribution the company may distribute cash notes property or a combination thereof to the interest holder in return of the interest holder’s capital_contribution capital accounts a separate capital_account shall be maintained for each interest holder section iv profit loss and distribution sec_4 distributions of cash_flow and allocations of profit or loss other than capital_transactions profit or loss other than from a capital_transaction after giving effect to the special allocations for purposes of subchapter_k of the internal_revenue_code set forth in sec_4 for any taxable_year of the company profit or loss other than profit or loss resulting from a capital_transaction which profit or loss shall be allocated in accordance with the provisions of sec_4 and shall be allocated to the interest holders in proportion to their percentages distributions of cash_flow cash_flow for each taxable_year of the company shall be distributed to the interest holders in proportion to their percentages no later than seventy-five days after the end of the taxable_year distribution of capital proceeds and allocation of profit or loss from capital_transactions profit after giving effect to the special allocations for purposes of subchapter_k of the internal_revenue_code set forth in sec_4 profit from a capital_transaction shall be allocated as follows if one or more interest holders has a negative capital_account to those interest holders in proportion to their negative capital accounts until all of those negative capital accounts have been reduced to zero any profit not allocated pursuant to sec_4 shall be allocated to the interest holders in proportion to and to the extent of the amounts distributable to them pursuant to sec_4 and any profit in excess of the foregoing allocation shall be allocated to the interest holders in proportion to their percentages loss after giving effect to the special_allocation for purposes of subchapter_k of the internal_revenue_code set forth in sec_4 loss from a capital_transaction shall be allocated as follows if one or more interest holder s has a positive capital_account to those interest holders in proportion to their positive capital accounts until all positive capital accounts have been reduced to zero any loss not allocated to reduce positive capital accounts to zero pursuant to sec_4 shall be allocated to the interest holders in proportion to their percentages capital proceeds capital proceeds shall be distributed and applied by the company in the following order and priority to the payment of all expenses of the company incident to the capital_transaction then to the payment of debts and liabilities of the company then due and outstanding including all debts due to any interest holder then to the establishment of any reserves which the general manager deems necessary for liabilities or obligations of the company then distributed as follows the balance shall be to the interest holders in proportion to their adjusted capital balances until their remaining adjusted capital balances have been paid in full if any interest holder has a positive capital_account after the distributions made pursuant to sec_4 and before any further allocation of profit pursuant to sec_4 to those interest holders in proportion to their positive capital accounts then interest holders in proportion to their percentages the balance to the liquidation and dissolution if the company is liquidated the assets if the company shall be distributed to the interest holders in accordance with the balances in their respective capital accounts after taking into account the allocations of profit or loss pursuant to sec_4 or if any and distributions if any of cash or property if any pursuant to sec_4 and except as otherwise provided in this agreement the timing and amount of all distributions shall be determined by the members holding a majority of the percentages then outstanding management rights powers and duties section v management general manager the company shall be managed by a general manager who may but need not be a member anna mirowski is hereby designated to serve as the initial general manager general powers the general manager shall have full exclusive and complete discretion power and authority subject in all cases to the other provisions of this agreement and the requirements of applicable law to manage control administer and operate the business and affairs of the company for the purposes herein stated and to make all decisions affecting such business and affairs including without limitation for company purposes the power to acquire by purchase lease or otherwise any real or personal_property tangible or intangible construct operate maintain finance and improve and to own sell convey assign mortgage or lease any real_estate and any personal_property sell dispose trade or exchange company assets in the ordinary course of the company’s business contract and to give receipts releases and discharges enter into agreements and purchase liability and other insurance to protect the company’s properties and business borrow money for and on behalf of the company and in connection therewith execute and deliver instruments authorizing the confession of judgment against the company execute or modify leases with respect to any part or all of the assets of the company prepay in whole or in part refinance amend modify or extend any mortgages or deeds of trust which may affect any asset of the company and in connection therewith to execute for and on behalf of the company any extensions renewals or modifications of such mortgages or deeds of trust execute any and all other instruments and documents which may be necessary or in the opinion of the general manager desirable to carry out the intent and purpose of this agreement including but not limited to documents whose operation and effect extend beyond the term of the company make any and all expenditures which the general manager it its sole discretion deems necessary or appropriate in connection with the management of the affairs of the company and the carrying out of its obligations and responsibilities under this agreement including without limitation all legal accounting and other related expenses_incurred in connection with the organization and financing and operation of the company enter into any kind of activity necessary to in connection with or incidental to the accomplishment of the purposes of the company and invest and reinvest company reserves in short-term instruments or money market funds extraordinary_transactions notwithstanding anything to the contrary in this agreement the general manager shall not undertake any of the following without the approval of the members any capital_transaction dollar_figure of its money on any one occasion the company’s lending more than members to the company the admission of additional the company’s engaging in business in any jurisdiction which does not provide for the registration of limited_liability companies and exercise any purchase option pursuant to section the company’s electing to removal of general manager a majority of the percentages held by all members at any time and from time to time and for any reason may remove the general manager then acting and elect a new general manager transfer of interests and withdrawals of members section vi transfers no person may transfer all or any portion of or any interest or rights in the person’s membership rights or membership interest unless the following conditions conditions of transfer are satisfied the transfer will not require registration of membership interests or membership rights under any federal or state securities laws the transferee delivers to the company a written instrument agreeing to be bound by the terms of section vi of this agreement the transfer will not result in the termination of the company pursuant to code sec_708 the transfer will not result in the company being subject_to the investment_company act of as amended the transferor or the transferee delivers the following information to the company i the transferee’s taxpayer_identification_number and ii the transferee’s initial tax basis in the transferred interest and the provisions set forth in section the transferor complies with if the conditions of transfer are satisfied then a member or interest holder may transfer all or any portion of that person’s membership interest the transfer of a membership interest pursuant to this section shall not result however in the transfer of any of the transferor’s other membership rights if any and the transferee of the membership interest shall have no right to i become a member ii exercise any membership rights other than those specifically pertaining to the ownership of a membership interest or iii act as na agent of the company each member hereby acknowledges the reasonableness of the prohibition contained in this section in view of the purposes of the company and the relationship of the members the transfer of any membership rights or membership interests in violation of the prohibition contained in this section shall be deemed invalid null and void and of no force or effect any person to whom membership rights are attempted to be transferred in violation of this section shall not be entitled to vote on matters coming before the members participate in the management of the company act as an agent of the company receive distributions from the company or have any other rights in or with respect to the membership rights right of first offer if an interest holder a transferor desires to transfer all or any portion of or any interest or rights in the transferor’s interest the transferor interest the transferor shall notify the company of that desire the transfer notice the transfer notice shall describe the transferor interest the company shall have the option the purchase option to purchase all of the transferor interest for a price the purchase_price equal to the transferor’s percentage times appraised value the purchase option shall be and remain irrevocable for a period the transfer_period ending pincite p m local time at the company’s principal office on the thirtieth 30th day following the date the transfer notice is given to the company at any time during the transfer_period the company may elect to exercise the purchase option by giving written notice of its election to the transferor the transferor shall not be deemed a member for the purpose of voting on whether the company shall elect to exercise the purchase option if the company elects to exercise the purchase option the company’s notice of its election shall fix a closing date the transfer closing date for the purchase which shall not be earlier than five days after the date of the notice of election or more than thirty days after the expiration of the transfer_period if the company elects to exercise the purchase option the purchase_price shall be paid in cash or in cash and a promissory note in accordance with section on the transfer closing date if the company fails to exercise the purchase option the transferor shall be permitted to offer and sell for a period of ninety days the free transfer_period after the expiration fo the transfer_period at a price not less than the purchase_price if the transferor does not transfer the transferor interest within the free transfer_period the transferor’s right to transfer the transferor interest pursuant to this section shall cease and terminate any transfer of the transferor interest made after the last day of the free transfer_period or without strict compliance with terms provisions and conditions of this section and other terms provisions and conditions of this agreement shall be null void and of no force or effect transfers to affiliates and family notwithstanding anything set forth in this agreement to the contrary but provided that the conditions of transfer other than section are satisfied any member may at any time and from time to time transfer all or any portion of or any interest or rights in the member’s membership interest or membership rights to i any other member ii any member of the member’s family or iii any affiliate of the member admission of transferee as member notwithstanding anything contained herein to the contrary the transferee of all or any portion of or any interest or rights in any membership right shall not be entitled to become a member or exercise any rights of a member and shall only be admitted as a member upon the unanimous consent of the members the transferee shall be entitled to receive to the extent transferred only the distributions to which the transferor would be entitled voluntary withdrawal no member shall have the right or power to voluntarily withdraw from the company involuntary withdrawal immediately upon the occurrence of an involuntary withdrawal the successor of the withdrawn member shall thereupon become an interest holder bu shall not become a member if the company is continued as provided in section the successor interest holder shall have all the rights of an interest holder but shall not be entitled to receive in liquidation of the membership interest the fair_market_value of the member’s membership interest as of the date the member involuntarily withdrew from the company appraised value the term appraised value means the appraised value of the equity of the company’s assets as hereinafter provided within fifteen days after demand by either one or the other the company and the withdrawing member shall each appoint an appraiser to determine the value of the equity of the company’s assets if the two appraisers agree upon the equity value of the company’s assets they shall joint- ly render a single written report stating that value if the two appraisers cannot agree upon the equity value of the company’s assets they shall each render a separate written report and shall appoint a third appraiser who shall appraise the company’s assets and determine the value of the equity therein and shall render a written report of his or her opinion thereon each party shall pay the fees and costs of the appraiser appointed by that party and the fees and other costs of the third appraiser shall be shared equally by both parties the equity value contained in the joint written report of the initial appraisers or the written report of the third appraiser as the case may be shall by the appraised value provided however that if the value of the equity contained in the appraisal report of the third appraiser is more than the higher of the first two appraisals the higher of the first two appraisals shall govern and provided further that if the value of the equity contained in the appraisal report of the third appraiser is less than the lower_of the first two appraisals the lower_of the first two appraisals shall govern installment buy-outs rather than pay all cash on the closing date the company may elect on ten days prior notice to the transferor to pay the purchase_price on an installment basis if it does so then it shall pay of the purchase_price in cash on the closing date and the balance by executing and delivering its promissory note in a form acceptable to both the company and the transferor to the transferor insolvency if immediately following the purchase of any interest or membership rights the company would be insolvent the company shall be relieved of its obligation to purchase that portion of the interest of membership rights that would render the company insolvent or may nominate a purchaser for that portion of the interest or membership rights interest or membership rights if the company is unable to pay lawfully for all of the interests purchased under the applicable provisions of this agreement then no surviving or remaining members shall be liable for or shall be required to assume the company’s obligation to purchase the balance of the interests dissolution liquidation and termination of the company section vii events of dissolution the company shall be dissolved upon the happening of any of the following events upon the unanimous written_agreement of all of the members or upon the occurrence of an involuntary withdrawal of a member unless the remaining members within ninety days after the occurrence of the involuntary withdrawal unanimously elect to continue the business of the company pursuant to the terms of this agreement procedure for winding up and dissolution if the company is dissolved the general manager shall wind up its affairs on winding up of the company the assets of the company shall be distributed i to creditors of the company including interest holders who are creditors in satisfaction of the liabilities of the company ii to interest holders and former interest holders in satisfaction of unpaid distributions iii to interest holders for the return_of_capital contributions and iv to interest holders in proportion to their respective capital accounts and then to the interest holders in accordance with sec_4 reproduced literally