The 8th Circuit, in affirming the Tax Court, found that a limited partnership created by a couple to hold Dell stock in trust for their children could not claim that the partnership’s transfer restrictions constituted a bona fide business arrangement. Therefore, under §2703, the restrictions could be disregarded when valuing the stock for gift tax purposes and applying smaller lack of marketability and minority interest discounts than claimed by the donors.

The Tax Court had held that the transfer restrictions were designed principally to discourage the children’s dissipation of the wealth transferred to them by way of gift, and said restrictions did not constitute a bona fide business arrangement within the meaning of §2703(b)(1).

The Holmans argued that the Tax Court applied an overly restrictive definition of the phrase “business arrangement” and effectively imposed an “operating business nexus.” In affirming the Tax Court decision, the 8th Circuit rejected the Holmans’ claims and reasoned that “context” matters when analyzing whether a restriction constitutes a bona fide business arrangement; in this case, there was no “business,” active or otherwise.