Comm'r

*96 GOEKE, Judge: Respondent determined a $ 52,878,785 Federal estate tax deficiency against the Estate of Wayne C. Bongard (the estate). *11 After concessions and stipulations, two issues remain for decision: First, whether the shares of Empak, Inc. (Empak), decedent transferred to WCB Holdings, LLC. (WCB Holdings), are included in his gross estate pursuant to sections 2035(a)¹ and 2036(a) and (b); and second, whether the WCB Holdings membership units decedent transferred to the Bongard Family Limited Partnership (BFLP) are included in his gross estate under sections 2035(a) and 2036(a). The resolution of these issues depends on the applicability of section 2036(a) to decedent's respective transfers of Empak stock to WCB Holdings and of WCB Holdings membership units to BFLP.

FINDINGS OF FACT

Many of the facts have been stipulated. The stipulation of facts, stipulation of settled issues, and attached exhibits are incorporated*12 herein by this reference.

Decedent resided in Minnesota on November 16, 1998, the date of his death. On December 9, 1998, the First Judicial District Court, Probate Court Division, Carver County, Minnesota, appointed James A. Bernards (Mr. Bernards) personal representative of decedent's estate. At the time the petition was filed, Mr. Bernards resided in Minnesota. On February 4, 2003, respondent issued a notice of deficiency to the estate with respect to its timely filed Form 706, United States Estate (and Generation-Skipping Transfer) Tax Return.

*97 I. General Background and Time Line

Decedent was a skilled and experienced businessman. In 1966, decedent was a founding employee of Fluoroware, Inc. (Fluoroware), a Minnesota corporation that produced packaging materials for the semiconductor, data storage, and microelectronic industries. In 1980, decedent left Fluoroware to start his own corporation, Empak.

On November 9, 1984, decedent married Cynthia Bongard. Decedent entered into this marriage with four children from a prior marriage: Beth Akerberg, Mark Bongard, Rhonda Notermann, and Lynn Zupan. Cynthia Bongard also entered the marriage with a child from a previous marriage, Terra*13 Saxe. ² Decedent and Cynthia Bongard never had any children together, nor did decedent adopt Terra Saxe.

On May 23, 1986, decedent formed the Wayne C. Bongard Irrevocable Stock Accumulation Trust (ISA Trust) for the benefit of his children and Terra Saxe, and funded it with shares of Empak stock. ISA Trust is described in further detail infra pp. 17-19.

On January 17, 1991, Empak incorporated Empak International, Inc. (Empak Intern ational), as a wholly owned subsidiary. Pursuant to a joint venture agreement, Empak sold an interest in Empak International to an unrelated foreign corporation. See infra p. 8 for greater details of this joint venture.

Between April 22, 1991, and December 30, 1994, ISA Trust made six distributions of shares of Empak stock to specific beneficiaries. After each distribution, Empak redeemed the shares from the distributee for cash. *14 See infra pp. 18-19 for specific details of these distributions/redemptions.

On January 30, 1996, WCB Holdings, LLC. (WCB Holdings) was established, but was not capitalized until December 28, 1996. Before WCB Holdings was capitalized, two significant events occurred. First, on April 18, 1996, Empak had a stock split of 223 to 1, significantly increasing the number of shares decedent and ISA Trust owned. See infra pp. 10-11 and p. 19. for details regarding the stock split and its effect it on the Empak shareholders. Second, in February 1996, Empak incorporated Emplast, Inc. (Emplast), and capitalized *98 it with some of Empak's noncore assets. On July 31, 1996, Empak distributed its Emplast shares to decedent in exchange for some of his Empak shares, which were canceled. This transaction and its effects are discussed further infra pp. 10-11 and p. 19.

On December 28, 1996, decedent and ISA Trust transferred their respective shares of Empak stock to WCB Holdings in exchange for WCB Holdings membership units, which were divided into class A governance, class A financial, class B governance, and class B financial units. For a greater discussion of this transaction, see infra pp. 11-14.

*15 On December 29, 1996, decedent and ISA Trust created the Bongard Family Limited Partnership (BFLP). Decedent transferred all of his WCB Holdings class B membership units to BFLP in exchange for a 99- percent limited partnership interest, and ISA Trust transferred a portion of its WCB Holdings class B membership units to BFLP in exchange for a 1-percent general partnership interest. BFLP is discussed in further detail infra pp. 19-21.

On March 7, 1997, Empak International merged into Empak, which resulted in the foreign corporation's receiving an ownership interest in Empak and the cancellation of Empak's shares in Empak International. Facts regarding this transaction are set forth infra pp. 14-15.

On March 15, 1997, decedent transferred WCB Holdings class A membership units to three trusts that he had previously established. Each of these trusts was established to benefit different members of his family. See infra pp. 21-23 for further details regarding these trusts. On December 10, 1997, decedent gave Cynthia Bongard a 7.72-percent limited partnership interest in BFLP. That same day, Cynthia Bongard and decedent entered into a postmarital agreement. See infra pp. 23-24 for details*16 of the postmarital agreement.

Decedent died unexpectedly on November 16, 1998, while on a business/hunting trip in Austria. Decedent was 58 years of age and appeared to be in good health before his death.

   A. Empak

On July 14, 1980, decedent founded Empak as a Minnesota corporation. Decedent was assisted by Mr. Bernards, who *99 was one of Fluoroware's outside accounting consultants, in incorporating Empak. Empak is an acronym for "electronic materials packaging". Empak engaged in the design, development, manufacture, and marketing of plastic products used in the semiconductor and data storage industries. Some of Empak's and Fluoroware's businesses directly competed with each other.

Decedent was Empak's sole shareholder upon incorporation. Empak had only one class of stock, common voting stock. When decedent funded the ISA Trust with shares of Empak stock in 1986, decedent's ownership percentage decreased to 85 percent. Decedent was also one of three directors on Empak's board of directors. In the mid-1980s, decedent became the sole member of Empak's board of directors and remained in that position until his death, except for a 28-day period*17 from December 30, 1996, to January 24, 1997. TEmpak g rew into a successful business through decedent's leadership. Empak's growth was attributable to selling a greater number and variety of products, expanding its markets, reinvesting its earnings, and borrowing funds. Empak, however, never declared a dividend.

   B. Empak, Marubeni Corp., and Marubeni America Corp. Joint

   Venture

In the 1980s, Empak, Marubeni Corp. (MC), and Marubeni America Corp. (MAC) engaged in a joint venture to produce plastic compact disk containers (a. k. a. jewel boxes). MC was a Japanese trading entity with over 700 subsidiaries and was listed on numerous international stock exchanges. MAC was the U.S. sales and marketing subsidiary of MC. Basically, MC financed and provided materials for the joint venture and Empak manufactured the jewel boxes.

   C. Empak's Incorporation of Empak International

On January 17, 1991, Empak incorporated Empak International, Inc., a wholly owned Minnesota subsidiary organized to distribute, sell, and manufacture a proprietary line of computer disk and semiconductor packaging products outside the United States and Canada. The formation of Empak International*18 was a function of the joint venture agreement *100 between Empak and MC. Pursuant to Empak International's shareholder agreement, Empak sold 49 percent of Empak International's common stock to MC for $ 3,765,000 but remained the majority shareholder with a 51-percent interest. During 1992 and 1993, Mark Bongard was employed by Empak International as vice president of sales and marketing.

   D. Planning for Corporate Liquidity

At a meeting in 1995, decedent, Robert Boyle (Mr. Boyle), Mr. Bernards, and Chuck Eitel (Mr. Eitel), then president of Empak, discussed various business plans for Empak to remain competitive in the market. Mr. Boyle began representing decedent's various business interests while he was an attorney at Larkin, Hoffman, Daly & Lindgren, Ltd. (Larkin Hoffman). Mr. Boyle left Larkin Hoffman in 1995 but continued his professional relationship with decedent. As part of these discussions, Mr. Boyle envisioned the necessary steps to position Empak for a corporate liquidity event, which the discussants agreed would provide Empak with the necessary capital to remain competitive. A corporate liquidity event included either a public or private offering of Empak stock.*19 Mr. Boyle handwrote notes during this meeting. These contemporaneous handwritten notes indicate that a single holding company, to hold all the Empak stock owned by the Bongard family, was going to be established as part of this business plan. As explained hereinafter, the formation of BFLP was part of decedent's estate plan and not contemplated as a necessary step in positioning Empak for a corporate liquidity event. On December 22, 1995, Mr. Boyle provided decedent with a letter memorializing the steps associated with obtaining corporate liquidity. Many of these integrated steps were completed before decedent's death.

     1. Empak's Incorporation and Spinoff ³ of Emplast

On February 21, 1996, Empak incorporated a wholly owned subsidiary, Emplast. Emplast was incorporated and capitalized with noncore assets of Empak to streamline Empak in preparation for a corporate liquidity*20 event. The *101 noncore assets consisted of assets outside of Empak's semiconductor business. The net book value of these assets was $ 5,752,854, which represented 5 percent of Empak's net book value. Mark Bongard was appointed the chief executive officer of Emplast and remained in that position until decedent's death.

Empak had a stock split on April 18, 1996, which was approved by a vote of the outstanding Empak stockholders. Empak shareholders received 223 shares for each Empak share held, which increased decedent's number of shares to 5,686,500. The stock split also increased ISA Trust's number of shares. See infra p. 19. The day following Empak's stock split, decedent in his capacity as Empak's sole member on its board of directors adopted a resolution authorizing grants of incentive stock options and nonqualified stock options. It does not appear that any of these stock options were exercised before decedent's death.

On July 31, 1996, Empak distributed the stock of Emplast to decedent. In exchange for receiving 100 percent ownership of Emplast, 551,871 of decedent's shares in Empak were canceled. This decreased decedent's ownership interest in Empak to 5,134,629 shares, or 86.39*21 percent. Because some of decedent's shares were canceled and ISA Trust did not participate in the distribution, ISA Trust's ownership percentage in Empak increased to 13.61 percent. ISA Trust's percentage holding of Empak had decreased after 1986 due to the redemptions of some of the Empak stocks held by the trust.

     2. WCB Holdings

In view of market conditions in 1996, Mr. Boyle determined that investors would be more likely to invest in Empak if the Bongard family members' ownership interests were placed in a holding company. As of December 1996, decedent and ISA Trust held all of the Empak stock. Decedent had established the ISA Trust on May 23, 1986, with the assistance of John Fullmer (Mr. Fullmer) and Mr. Boyle. When ISA Trust was established, Messrs. Fullmer and Boyle were both attorneys with Larkin Hoffman, but in 1996 only Mr. Fullmer was with Larkin Hoffman. In 1996, Mr. Boyle, who continued to represent decedent's business interests after leaving Larkin Hoffman, informed Mr. *102 Fullmer, decedent's estate planning attorney, that decedent's Empak stock was going to be transferred to a holding company as part of the overall plan to achieve corporate liquidity.

*22 On January 30, 1996, Mr. Boyle, on behalf of decedent, organized WCB Holdings as a Minnesota limited liability company (WCB Holdings). Its articles of organization (articles), as amended, authorized the issuance of class A governance, class A financial, class B governance, and class B financial units. The class A governance units were the sole membership units with voting rights except as provided under State law. ⁴

On December 28, 1996, decedent contributed his 5,134,629 shares of Empak stock to WCB Holdings. Decedent received in exchange 513,463 class A governance, 513,463 class A financial, 4,621,166 class B governance, and 4,621,166 class B financial membership units in WCB Holdings. This gave*23 decedent an 86.39-percent ownership interest in each subclass of WCB Holdings membership units. ISA Trust also contributed its 808,598 shares of Empak stock to WCB Holdings and received 80,860 class A governance, 80,860 class A financial, 727,738 class B governance, and 727,738 class B financial units. This gave ISA Trust a 13.61-percent ownership interest in each subclass of WCB Holdings membership units. Decedent and ISA Trust received WCB Holdings class A governance, class A financial, class B governance, and class B financial membership units in proportion to the number of Empak shares each contributed. ⁵

*24 On December 28, 1996, Mark Bongard was elected chief manager, secretary, and treasurer of WCB Holdings. According to the Member Control Agreement, the chief manager is the person "duly elected or appointed pursuant to the terms of this Agreement to manage the business of the Company." Some of the chief manager's duties include general management, *103 presiding at meetings, overseeing that orders and resolutions are carried out, maintaining records and certifying proceedings, and signing and delivering WCB Holdings documents.

Limitations were placed on the chief manager's powers. For instance, the Member Control Agreement provided that the chief manager was not granted sole decisionmaking authority over the allocation of distributions. If a distribution were authorized, it would be allocated according to the number of class A financial and class B financial units owned. The chief manager was also charged with the decisionmaking for accounting matters, except if the members representing a majority of class A governance units disagreed. The members by a majority vote of the class A governance units could take any action the chief manager himself could take and could remove the chief manager.*25 Lastly, the chief manager needed the approval of the members representing the majority of the class A governance units before he could issue additional membership units, lend, borrow, or commit WCB Holdings's funds in excess of $ 25,000, authorize capital expenditures in excess of $ 10,000, sell any of WCB Holdings's assets, including its Empak stock, worth over $ 10,000 in any 12-month period, or vote any securities, including its Empak stock, owned by WCB Holdings.

On December 30, 1996, 2 days after WCB Holdings was capitalized, a vote was held to increase the number of Empak directors to two. The WCB Holdings chief manager did not vote on this change, even though WCB Holdings was the sole shareholder of Empak stock. Rather, decedent and Mr. Boyle, as trustees for the ISA Trust, voted for this change.

     3. Empak International's Merger Into Empak

On March 7, 1997, Empak International merged into Empak. As part of the merger, MC's stock in Empak International was canceled and MC received, among other things, 660,359 shares of Empak common stock and an option to purchase 58,667 additional shares of Empak common stock. Empak's stock in Empak International was canceled.

*26 Pursuant to the merger, Empak assumed responsibility for the foreign distribution of Empak products with the exception of Japan. Empak appointed MAC as the exclusive *104 exporter of Empak products to Japan and MC as the exclusive distributor of Empak products in Japan. Empak's ownership was altered as a result of the merger of Empak International into Empak as follows:

                         Percentage

              Number of          of

 Empak shareholder      shares          total

 _________________     _________        __________

 WCB Holdings        5,943,227          90%

 MC              396,215           6

MAC            264,144           4

   Total         6,603,586          100

   E. Consolidation of Empak and Fluoroware

In the summer of 1998, Empak and Fluoroware began consolidation discussions. Decedent engaged in the discussions in his capacity as chairman of the board*27 and chief executive officer of Empak. Before November 1998, decedent had sketched out potential organizational structures in the event the corporations consolidated, but Empak and Fluoroware did not agree to specific details regarding the consolidation before decedent's death. Following decedent's unexpected death on November 16, 1998, consolidation discussions were renewed.

On February 5, 1999, Mr. Bernards, who assisted in representing Empak in the discussions, recommended the approval of a consolidation between Empak and Fluoroware. On March 15, 1999, Empak and Fluoroware signed a letter of intent to consummate the general terms of the consolidation. Between April 13 and 14, 1999, Mr. Boyle, as corporate secretary of Empak, prepared and filed Federal Trade Commission (FTC) Form 4 (a. k. a. Hart-Scott-Rodino filing), with the FTC indicating the parties' intended consolidation. Mark Bongard, as chief manager of WCB Holdings, gave notice of a special meeting to its members to consider the proposed consolidation, which was approved by the members. On June 1, 1999, Empak and Fluoroware entered into a consolidation agreement which provided for the formation of a new corporation, Entegris, *28 Inc. (Entegris). Pursuant to the new consolidation agreement, Empak shareholders received 10,250,789 Entegris shares, which represented a 40-percent ownership interest.

*105 On March 31, 2000, Entegris filed a registration statement with the Securities and Exchange Commission in anticipation of its initial public offering (IPO). On July 11, 2000, Entegris had a 2-for-1 stock split, resulting in WCB Holdings's owning 21,580,608 ⁶ shares of Entegris stock. Also on July 11, 2000, Entegris completed its IPO. WCB Holdings sold 1,925,000 shares of Entegris as part of the Entegris IPO.

Decedent sought counsel, considered advice, and worked on his estate planning from at least 1984. In 1984, decedent did not want either his children or Cynthia Bongard to directly own Empak stock. Decedent engaged*29 Larkin Hoffman for estate and business planning purposes.

   A. ISA Trust

On May 23, 1986, decedent established ISA Trust with the assistance of Larkin Hoffman. ISA Trust was initially funded by decedent's transfer of 4,500 of Empak's 30,000 outstanding shares, which represented a 15-percent ownership interest in Empak. The beneficiaries of ISA Trust were decedent's four children and Terra Saxe. The initial trustees of ISA Trust were Mr. Bernards and Larry Welter, an employee of Empak. The trustees were granted the power to distribute the trust's income or principal to any beneficiary acquiring a home or establishing and maintaining a trade or business. On February 14, 1988, Mr. Bernards resigned as trustee of ISA Trust, leaving Mr. Welter as sole trustee.

ISA Trust made six distributions between April 22, 1991, and December 30, 1994. Each distribution was preceded by decedent's requesting the trustee or trustees to consider making the distribution. After each distribution, an entry was made in Empak's stock register recording ISA Trust's distribution of Empak shares to a particular beneficiary. Empak and the named distributee would enter into a stock redemption agreement*30 at approximately the same time as the distribution. The stock redemption agreements provided for*106 Empak to redeem the distributed shares if the distributee was willing.

The first distribution occurred on April 22, 1991. ISA Trust distributed 150 shares of Empak stock to Mark Bongard, who then caused Empak to redeem the shares on May 1, 1991, for $ 40,000, which he used to purchase a home. The second distribution of 180 shares of Empak stock occurred on August 31, 1992. Beth Akerberg was the recipient of this distribution, which was shortly followed by a redemption of the shares by Empak in exchange for a 90-day note. On February 1, 1994, ISA Trust distributed 250 shares of Empak stock to Lynn Zupan. On the same day, Empak redeemed the 250 shares from Lynn Zupan. Empak paid a portion of the redemption proceeds directly to a third party who had performed home improvement work on Lynn Zupan's home. The fourth, fifth, and sixth distributions all occurred on December 30, 1994. Mark Bongard, Rhonda Notermann, and Beth Akerberg were the recipients of 85, 151, and 58 shares of Empak stock, respectively, all of which were apparently redeemed by Empak. Following these six distributions, ISA*31 Trust held 3,626 shares of Empak stock which represented a 12.45-percent ownership interest.

On January 5, 1995, Mr. Welter appointed Mark Bongard and Mr. Boyle as cotrustees of ISA Trust; he then resigned as trustee. Mark Bongard and Mr. Boyle accepted their appointments on January 10 and 18, 1995, respectively. Mr. Boyle and Mark Bongard later reappointed Mr. Bernards as an additional ISA Trust trustee on October 1, 1997.

When Empak's stock was split 223 to 1 on April 18, 1996, ISA Trust's number of Empak shares increased to 808,598. When Empak distributed to decedent its Emplast stock on July 31, 1996, ISA Trust continued to hold 808,598 shares of Empak. ISA Trust's ownership percentage of Empak was 13.61 percent at that time.

   B. Bongard Family Limited Partnership

On December 28, 1996, decedent signed a letter that was written by Mr. Fullmer and addressed to decedent's children. The letter expressed some reasons for forming WCB Holdings and BFLP. The letter explained that the entities provided, among other things, a method for giving assets to decedent's*107 family members without deterring them from working hard and becoming educated, protection of his estate from frivolous*32 lawsuits and creditors, greater flexibility than trusts, a means to limit expenses if any lawsuits should arise, tutelage with respect to managing the family's assets, and tax benefits with respect to transfer taxes.

On December 29, 1996, decedent contributed all of his 4,621,166 WCB Holdings class B governance and 4,621,166 WCB Holdings class B financial units to BFLP in exchange for a 99-percent limited partnership interest in BFLP. ISA Trust contributed 46,678 WCB Holdings class B governance and 46,678 WCB Holdings class B financial units to BFLP and received a 1-percent general partnership interest in exchange. Mr. Boyle (as trustee of ISA Trust), decedent, and Mr. Fullmer (as decedent's estate planning counsel) negotiated the terms of the partnership, and explained the partnership to Mark Bongard (cotrustee of ISA Trust) before the partnership agreement was executed. Pursuant to the partnership agreement, either decedent, as limited partner, or ISA Trust, as general partner, could propose amendments to the partnership. For a proposed amendment to be adopted, both the general partner, ISA Trust, and 60 percent of the limited partnership interests needed to vote in favor of the*33 amendment. BFLP was validly created and existing under Minnesota law until decedent's death.

In the event BFLP liquidated, its assets were first to be allocated to satisfy its creditors, other than the general partner, limited partners, or assignees, second, to satisfy any liabilities owed to the interest holders, ⁷ and third, to satisfy any liabilities owed to the general partner. Any remaining assets were to be allocated among the general partner, limited partners, or assignees in accordance with their respective capital accounts.

   C. Additional Trusts Created by Decedent

On December 28, 1996, decedent created the Wayne C. Bongard Children's Trust (CH Trust), and appointed Mark Bongard and Mr. Bernards as trustees. Decedent initially funded the CH Trust on March 15, 1997, with 77,262 class *108 A governance*34 and 77,262 class A financial units in WCB Holdings.

On December 30, 1996, decedent created the Wayne C. Bongard Grandchildren's Trust (GC Trust). The trust agreement was drafted by Mr. Fullmer. Decedent appointed Del Jensen and Mr. Eitel, both of whom were employed by Empak, as trustees. Decedent funded GC Trust on March 15, 1997, by transferring 77,262 class A governance and 77,262 class A financial units in WCB Holdings. Decedent's children and issue were the named beneficiaries of GC Trust.

On December 30, 1996, decedent created the Cynthia F. Bongard Qualified Terminable Interest Property Trust (QTIP Trust). The QTIP Trust agreement was drafted by Mr. Fullmer. Gary Bongard (decedent's brother) and Gary Brown (decedent's friend) were appointed trustees of this trust. The named beneficiaries of QTIP Trust were Cynthia Bongard, decedent's children, and their issue. On March 15, 1997, QTIP Trust was funded by decedent with 71,319 class A governance and 71,319 class A financial units in WCB Holdings.

Decedent formed the Wayne C. Bongard Revocable Trust (Revocable Trust) on December 28, 1996. Decedent appointed himself trustee, Mr. Bernards successor trustee, and Mark Bongard second*35 successor trustee. According to decedent's last will and testament dated December 28, 1996, all of his property was to go to the Revocable Trust, except his personal property was to go to Cynthia Bongard.

Decedent's funding of GC Trust, CH Trust, and QTIP Trust changed the ownership interests in WCB Holdings so that they were held as follows:

   WCB     Class A      Class A     Class B      Class B

Holdings   governance     financial    governance      financial

  member   units/percent   units/percent  units/percent     units/percent

________   _____________   _____________  _____________     _____________

Decedent   287,620/48.39   287,620/48.39      0/0        0/0

ISA Trust   80,860/13.61    80,860/13.61   681,060/12.73   681,060/12.73

BFLP        0/0       0/0     4,667,844/87.27  4,667,844/87.27

CH Trust     77,262/13     77,262/13      0/0        0/0

GC Trust     77,262/13     77,262/13      0/0        0/0

QTIP       71,319/12     71,319/12     *36 0/0        0/0

Trust

Total     594,323/100    594,323/100   5,348,904/100   5,348,904/100

Decedent reported the funding of CH Trust, GC Trust, and QTIP trust on a Federal gift tax return for 1997. The values reported on the gift tax return were consistent with a valuation *109 report prepared as of December 15, 1996, before WCB Holdings's formation.

   D. Decedent's Transfer of BFLP Interest to Cynthia

   Bongard

On December 10, 1997, decedent made a gift representing a 7.72- percent ownership interest in BFLP to Cynthia Bongard. BFLP's ownership was then as follows:

                 Partnership interest &

BFLP partner                type

____________            ______________________

ISA Trust              1%, general partner

Decedent               91.28%, limited

                  partner n.1

Cynthia               7.72%, limited

                  partner

n.1 Decedent owned this interest until*37 his death.

Decedent did not report this gift on his gift tax return filed for taxable year 1997, as the marital gift tax exclusion was applicable. Cynthia Bongard and decedent entered into a postmarital agreement contemporaneously with the transfer. This agreement was "in full discharge, settlement, and satisfaction of all such rights and claims [either spouse may have possessed against the other], in the event of the termination of their marital relationship or after the death of the first of them to die".

   E. Purpose and Function of BFLP

From its inception until decedent's death, BFLP did not perform any activities, never acted to diversify its assets, or make any distributions. The WCB Holdings membership units in BFLP were nonvoting, and decedent determined whether the Empak shares held by WCB Holdings would be redeemed. WCB Holdings did not redeem any of its class B membership units held by BFLP before decedent's death.

F. 1998 ISA Trust Distribution

In early 1998, decedent suggested that ISA Trust make distributions to each of his children to see how maturely they would handle the funds. A series of transactions occurred in which Empak redeemed 52,924*38 of its outstanding shares from WCB Holdings, and WCB Holdings then redeemed 21,345 *110 of its class A and class B financial units from ISA Trust. This redemption generated $ 747,816.12. After covering tax liabilities of all WCB Holdings members, WCB Holdings and in turn ISA Trust distributed $ 400,000 in four equal shares to decedent's four children. The ownership interests in WCB Holdings were changed so that they were held as follows:

WCB      Class A       Class A       Class B      Class B

Holdings   governance      financial     governance      financial

member   units/percentage  units/percentage units/percentage  units/percentage

________ ________________  ________________ ________________  ________________

Decedent   287,620/48.39%   287,620/50.2      0/0        0/0

ISA Trust   80,860/13.61    59,515/10.39    681,060/12.73   659,715/12.38

BFLP       0/0        0/0      4,667,884/87.27 4,667,864/87.62

CH Trust    77,262/13    77,262/13.48      0/0        0/0

GC Trust    77,262/13    77,262/13.48  *39     0/0        0/0

QTIP Trust   71,319/12    71,319/12.45      0/0        0/0

Total     594,323/100    572,978/100    5,348,944/100   5,327,579/100

The estate filed a Federal estate tax return on February 15, 2000. For Federal estate tax purposes, the estate elected the alternate valuation date of May 16, 1999. On February 15, 2000, the estate completed a Form 706, United States Estate (and Generation- Skipping Transfer) Tax Return, which reported that the Federal estate tax owed was $ 17,004,363. The estate attached Schedule F, Other Miscellaneous Property Not Reportable Under Any Other Schedule, to its Form 706. Schedule F showed the alternate values of decedent's WCB Holdings class A membership units and his 91.28-percent limited partnership interest in BFLP to be $ 4,193,000 and $ 41,329,838, respectively. On February 4, 2003, respondent issued to the estate a notice of deficiency, that determined a Federal estate tax deficiency of $ 52,878,785. In the notice of deficiency, respondent adjusted the values attached by the estate to many assets in decedent's gross estate. In*40 addition, respondent determined that the 5,134,629 shares of Empak stock decedent transferred to WCB Holdings were includable in decedent's gross estate because decedent had retained sections 2035(a) and 2036(a) and/or (b) rights and interests in the transferred property. On the estate tax return, the estate reported values of the WCB Holdings class A units and BFLP interest held by decedent at his death totaling $ 45,523,338. Respondent in the notice of deficiency included in the gross estate a value*111 for decedent's Empak shares that had been transferred to WCB Holdings totaling $ 141,621,428. ⁸ This resulted in an adjustment increasing the gross estate by $ 96,098,120.

Prior to trial, respondent amended the answer to seek an increased deficiency based*41 upon the parties' agreement that the starting price of Empak shares before any discounts was $ 32.24. Using this value, respondent's counsel estimated the revised adjustment to decedent's gross estate could be as high as $ 160 million.

OPINION

A Federal estate tax is imposed "on the transfer of the taxable estate of every decedent who is a citizen or resident of the United States." Sec. 2001(a). The estate tax is imposed on the value of the taxable estate with specified adjustments made. Sec. 2001(b). A decedent's taxable estate is determined by the value of the decedent's gross estate less enumerated deductions. Sec. 2051. The value of a gross estate includes all of a decedent's property to the extent provided under sections 2033 through 2045. Sec. 2033. At issue here is whether certain property decedent transferred during his lifetime is included in his gross estate under sections 2035(a) and 2036(a) and (b).

The estate argues that under section 7491(a) the burden of proof has shifted to respondent. Conversely, respondent contends the burden has not shifted because the estate was not cooperative within the meaning of section 7491(a), and because the estate*42 failed to introduce credible evidence necessary for the burden to shift. It is unnecessary for us to address the parties' disagreements and to determine whether the burden of proof has shifted because the outcome of this case is determined on the preponderance of the evidence and is unaffected by section 7491. See Blodgett v. Commissioner, 394 F.3d 1030, 1035 (8th Cir. 2005), affg.