The identity of the partners, general and limited, remained the same. However, the agreement placed an absolute prohibition upon inter vivos transfers of partnership interests, provided that partnership interests could be redeemed only by the partnership, and further provided a mandatory settlement or "buy-out" of a partner's interest upon his death at a price computed in accordance with a "formula" contained in the agreement. The formula price represented the retired partner's capital account with adjustments reflecting partnership income and withdrawals. These restrictions upon transferability were intended to accomplish two objectives. First, they were intended to maintain ownership and control of the businesses of the four corporations, of which F. B. Associates was the majority stockholder, within the Bischoff and Brunckhorst families and thereby assure their continuing ability to carry on their pork processing business without outside interference. Second, the restrictions were intended to provide continuity of management; in effect, the restrictions were to assure that the younger memebers of the Bischoff and Brunckhorst families would remain with the companies after the deaths or retirements of the older members.

On July 31, 1964, F. Tony Brunckhorst withdrew from F. B. Associates. As a result of his withdrawal, the 1963 partnership agreement was amended to provide for the retirement of the interest held in trust for him. At the same time, the capital account of the trust for the benefit of Barbara Brunckhorst Stravitz was increased by the amount of F. Tony Brunckhorst's redeemed account. Since that date, four partners, including decedents, have died. The partnership interest of each of these deceased partners has been retired in accordance with the provisions of the 1963 agreement.

At his death, Bruno held a 12.5-percent interest in F. B. Associates which was retired in accordance with the agreement for $454,794.70, and at her death, Bertha held a 14.286-percent interest in F. B. Associates which was likewise retired for $342,605.35. As a result of the retirement of these interests and the interests of two other deceased partners, the total interests held by the Bischoff family in F. B. Associates have been, at various times, one-half, three-sevenths, one-third, and are now

5Frank Brunckhorst died in 1972, and Herbert Bischoff died in 1973.

one-quarter. Alvina Martin, the sole surviving Bischoff family partner in F. B. Associates, presently owns an interest that is substantially smaller than the collective interest which she and her parents, the decedents, held in 1963.

The decedents' interests in Frank Brunckhorst Co. (the partnership that distributed Boar's Head products) were held at their deaths pursuant to a limited partnership agreement, dated January 1, 1966, which superseded all prior partnership agreements. Like the 1963 F. B. Associates partnership agreement, this agreement placed an absolute prohibition upon inter vivos transfer of partnership interests (which could be redeemed only by the partnership) and provided a mandatory retirement of a partner's interest upon his or her death. The redemption or retirement price is computed in accordance with a "formula" contained in the agreement. The formula price represented the retired partners' capital account with adjustments reflecting partnership income and withdrawals. These restrictive provisions, like those in the F. B. Associates partnership agreement, were intended to exclude outsiders and assure managerial continuity. At his death, Bruno owned a 3.406-percent interest in Frank Brunckhorst Co. which was retired in accordance with the partnership agreement for $26,523.16, and at her death, Bertha owned a 3.526-percent interest in Frank Brunckhorst Co. which was likewise retired for $28,147.56.

In addition to the partnership interests in Frank Brunckhorst Co. which Bruno and Bertha owned at death, they had previously held additional interests therein which they had transferred in trust for the benefit of their grandchildren.

By agreements dated December 31, 1957, Bruno created identical trusts for the benefit of his and Bertha's four grandchildren. The corpus of each trust, when created, was 7.5 percent of Bruno's then 10-percent interest in Frank Brunckhorst Co., constituting a 0.75-percent interest in the company. The trusts were irrevocable and were to terminate upon the beneficiaries' reaching 21 years of age. The trustee of each trust was authorized to apply income and principal for the benefit of the beneficiary and to accumulate income not so applied. Bertha was named trustee of each trust, and, in the event of her death, resignation, or failure to act, Frank Brunckhorst was appointed substitute and successor trustee in each case.

On January 1, 1958, Bertha created four identical trusts for

the benefit of the same grandchildren. The corpus of each trust, when created, was 7.5 percent of Bertha's then 10-percent interest in Frank Brunckhorst Co., constituting a 0.75-percent interest in the company. The trust terms were identical to those of the trusts created by Bruno, with the exception that Bruno was named trustee of each trust. Bruno and Bertha died prior to the termination of any of the foregoing trusts.

Bruno and Bertha also owned at death partnership interests in B.B.W. Co. (B.B.W.), a real estate holding company which owned property in New York City and certain other minor investments and assets. B.B.W. was composed of members of the Bischoff, Brunckhorst, and Weiler families whose interest were held pursuant to a limited partnership agreement dated January 1, 1956, as amended by agreement dated January 1, 1962. Bruno held a 10-percent interest in B.B.W. at death, and Bertha held a 15-percent interest in B.B.W. at death. The underlying asset value of B.B.W. on August 1, 1967, Bruno's date of death, was $858,000; and the underlying asset value of B.B.W. on May 7, 1970, the anniversary of Bertha's death, was $833,000.

On the Federal estate tax returns, petitioners included in Bruno's and Bertha's respective gross estates the amounts received upon retirement of their interests in F. B. Associates and Frank Brunckhorst Co. Petitioners did not include in their respective gross estates any part of the value of the corpora of the trusts created by Bruno and Bertha for the benefit of their grandchildren. In addition, they valued Bruno's and Bertha's interests in B.B. W. at $78,796.92 and $76,700.02, respectively.

Respondent in his statutory notice determined that the restrictive buy-sell provisions in the F. B. Associates and Frank Brunckhorst Co. partnership agreements served no bona fide business purpose and as a consequence included in each decedent's gross estate an amount he determined to be the fair market value of the respective partnership interests. Respondent also determined that the corpora of the trusts created by Bruno and Bertha for the benefit of their grandchildren were includable in the gross estates of each trustee under sections 2036 and 2038. Finally respondent determined that the fair market values of Bruno's and Bertha's minority interests in B.B.W. were $86,000 and $125,000, respectively.

OPINION

The first issue for decision is whether the value of decedents' partnership interests in F. B. Associates and Frank Brunckhorst Co., for purposes of the Federal estate tax, is limited to the amount provided for and paid under the partnership buy-sell provisions in effect on the dates of decedents' deaths. In Estate of Weil v. Commissioner, 22 T.C. 1267, 1273, 1274 (1954), we stated:

It now seems well established that the value of property may be limited for estate tax purposes by an enforceable agreement which fixes the price to be paid therefor, and where the seller if he desires to sell during his lifetime can receive only the price fixed by the contract and at his death his estate can receive only the price theretofore agreed on. Estate of Albert L. Salt, 17 T.C. 92; Lomb v. Sugden, 82 F.2d 166; Wilson v. Bowers, 57 F.2d 682.

Respondent does not contend that the partnership restrictive buy-sell provisions are unenforceable nor does he contend that no lifetime and after-death transfer restrictions existed. Instead he contends that the buy-sell provisions in the F. B. Associates and Frank Brunckhorst Co. partnership agreements should be disregarded because they lacked a bona fide business purpose and were merely a substitute for a testamentary disposition to the natural objects of decedents' bounty. See sec. 20.2031–2(h), Estate Tax Regs. We disagree and, in accordance with the reasoning and findings of the trial judge, hold that the provisions had a business purpose and that they were not a substitute for a testamentary disposition.

Respondent first contends that the restrictive buy-sell provisions in both the F. B. Associates and the Frank Brunckhorst Co. partnership agreements should be disregarded because the maintenance of continuity of management is the only business purpose which will support a buy-sell arrangement. He argues further that since F. B. Associates and Frank Brunckhorst Co. were limited partnerships and since the limited partners did not play an active role in the business, the buy-sell provisions had no management or business rationale.

Respondent fails to cite, and we are unable to find, any support for this contention. On the contrary, the cases have held that the maintenance of family ownership and control constituted a

*Because we find valid business reasons for the buy-sell provisions, we do not reach the question whether in the absence of such reasons a genuine and binding restriction on sale can properly be ignored in determining value.

'Cynthia Holcomb Hall, Judge, was the trial judge in this case.

legitimate business consideration. Estate of Reynolds v. Commissioner, 55 T.C. 172 (1970); Estate of Littick v. Commissioner, 31 T.C. 181 (1958); Baltimore National Bank v. United States, 136 F.Supp 642 (D. Md. 1955).

The evidence presents a picture of a pork processing business organized, controlled, and managed by three families. Two of those families subsequently organized a limited partnership, F. B. Associates, and transferred their stock holdings in Boar's Head and its sister corporations to that partnership. The F. B. Associates partnership agreement was amended thereafter to provide for the mandatory retirement or redemption of a retiring or deceased partner's interest in the partnership. In addition, the Frank Brunckhorst Co. partnership agreement was similarly amended to provide for mandatory retirement or redemption of a retiring or deceased partner's interest.

We are convinced that the members of F. B. Associates and Frank Brunckhorst Co. entered into the respective partnership agreements in order to assure their continuing ability to carry on their pork processing business without outside interference, including that of a dissident limited partner. In order to accomplish this objective, restrictive buy-sell provisions were incorporated into the partnership agreements. The F. B. Associates agreement maintained ownership and control of F. B. Associates in the Bischoff and Brunckhorst families and in turn maintained ownership and control of Boar's Head and its sister corporations within those two families, and the Frank Brunckhorst Co. agreement maintained ownership and control of Frank Brunckhorst Co. in the Bischoff, Brunckhorst, and Weiler families. We therefore conclude that the buy-sell provisions were grounded on legitimate business considerations.8

Respondent also argues that, since F. B. Associates was merely a holding company and required no management, no "legitimate" business purpose existed for the buy-sell arrangement and that it should be disregarded. In support of his argument, respondent emphasizes that the cases in which a bona fide business purpose was found all involved the active conduct of a trade or business.

We are of the opinion that respondent's argument is artificial

See Estate of Weil v. Commissioner, 22 T.C. 1267 (1954), where we found no evidence of a taxavoidance scheme in a situation involving a limited partnership.