The Eighth Circuit on Friday affirmed the Tax Court’s decision in favor of the IRS in a § 2036 family limited partnership case:  Korby v. Commissioner, Nos. 06-1201 & 06-1203 (8th Cir. 12/8/06), aff’g T.C. Memo. 2005-102 & T.C. Memo. 2005-103:

We find no clear error in the tax court’s determination that an implied agreement existed between the Korbys and their four sons which allowed Austin and Edna to retain the right to income from [Korby Properties Limited Partnership] after its initial funding. As outlined above, KPLP made significant payments to the Korbys’ living trust over the remainder of their lifetimes. The lack of a written management contract between the living trust and KPLP, Austin’s failure to keep track of the hours he spent managing KPLP, the manner in which the payments were made, and Austin’s failure to report the payments as self-employment income, all support the tax court’s rejection of the Korbys’ management-fee claim. In addition, the evidence considered by the tax court included the fact the Korbys retained less than $10,000 in assets in the living trust (their only source of income) following the funding of KPLP – despite the fact both of the Korbys were in poor health and could expect to incur living expenses beyond amounts their Social Security benefits would cover.

Several circuits have reviewed decisions from the tax court with similar facts and concluded the tax court did not clearly err in finding a retained right of control. See Strangi, [Abraham, and Thompson]. …  We agree with those decisions, and affirm the tax court’s finding that the Korbys retained for their lives the right to the income from the assets transferred to KPLP.