## Facts

- Shortly before his death, Albert Strangi, in declining health, transferred roughly $10 million in personal assets (including marketable securities and real estate) to a family limited partnership, the Strangi Family Limited Partnership (SFLP), and related entities.
- Strangi received a 99% limited partnership interest; management authority rested with a corporate general partner controlled by family members, particularly his attorney son-in-law.
- After formation, partnership funds were used to pay personal living expenses (including household and nursing services) and substantial estate administration expenses.
- Strangi’s residence was contributed to the partnership, but he continued to live there with no meaningful change in use or enjoyment.
- For estate tax reporting, the estate valued only Strangi’s partnership interest and claimed significant valuation discounts, rather than reporting the full value of the contributed assets.
- The IRS issued a deficiency notice; after remand from an earlier appeal, the Tax Court held the underlying assets were includible in the gross estate under I.R.C. § 2036(a), and the estate appealed.

## Issues

1. Whether the transferred assets were includible in the gross estate under I.R.C. § 2036(a)(1) because Strangi retained, in substance, possession or enjoyment of, or income from, the property.
2. Whether inclusion was warranted under I.R.C. § 2036(a)(2) because Strangi, alone or in conjunction with others, retained the right to designate who would possess or enjoy the property or its income.
3. Whether the transfers qualified for the “bona fide sale for an adequate and full consideration in money or money’s worth” exception to § 2036(a).

## Decision

- The Fifth Circuit affirmed the Tax Court’s judgment sustaining the estate tax deficiency.
- The court held the Tax Court did not clearly err in finding an implied agreement that Strangi would retain possession or enjoyment of the transferred assets, triggering § 2036(a)(1).
- The court also upheld inclusion under § 2036(a)(2) because Strangi, in conjunction with family-controlled management, retained effective influence over the enjoyment of partnership property and income.
- The court agreed the § 2036(a) bona fide sale/adequate consideration exception did not apply because the transaction lacked a demonstrated non-tax business purpose and did not meaningfully alter Strangi’s economic position.

## Legal Principles

- I.R.C. § 2036(a) requires inclusion of transferred property in the gross estate when the decedent retained (1) possession or enjoyment (or income rights) or (2) the right, alone or with others, to designate who will enjoy the property or income, unless the transfer was a bona fide sale for adequate and full consideration.
- Courts evaluate retained enjoyment and control based on substance, including implied agreements and de facto arrangements, not only formal legal rights.
- Use of entity assets to pay a transferor’s living expenses or estate obligations may support a finding of retained enjoyment under § 2036(a)(1).
- Family-dominated control structures can support a finding that the decedent retained designation power “in conjunction with” others under § 2036(a)(2).
- The bona fide sale exception is narrow and generally requires a legitimate, significant non-tax purpose and a real economic change, not merely paper restructuring to obtain valuation discounts.

## Conclusion

The Fifth Circuit held that placing assets into a family limited partnership did not remove them from the gross estate where the decedent continued to benefit from the assets and, through family-controlled management, retained effective influence over their enjoyment; the lack of a bona fide sale for adequate consideration defeated the claimed exception under I.R.C. § 2036(a).


Strangi v. Commissioner of Internal Revenue, 417 F.3d 468 (5th Cir. 2005)