Laws, Regulations & Annotations

Business Taxes Law Guide – Revision 2018

Sales and Use Tax Annotations

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Annotation 395.0090


395.0090 Gift of Business to Children. A husband and wife partnership individually executed gift tax returns by which each made separate gifts of a portion of their business interest to two children. A new partnership, consisting of the parents and the two children, was then formed to conduct the business.

The transfer did not constitute a "sale." In order for a sale to have occurred, the transfer of title must have been for legal consideration. To constitute good consideration in this case, there must have been a benefit conferred or agreed to be conferred upon the transferors or a detriment suffered or agreed to be suffered by the transferees, and the act, promise, or forbearance constituting the consideration must have been given in exchange for the offeror's act or promise. Here, there was no benefit conferred or agreed to be conferred upon the transferors in exchange for the transfer. After the transfer, the transferors stood in precisely the same position with respect to liabilities as they did prior to the transfer.

While Corporation Code section 15017 provides that a partner admitted into an existing partnership is liable for all the obligations of the partnership arising before his admission as though he had been a partner when such obligations were incurred, the statute expressly provides ". . . that this liability shall be satisfied only out of partnership property." Thus, when an incoming partner receives an ownership interest by way of gift and does not make an independent promise to pay the partnership liabilities from his other resources, there is no transfer for a consideration. There is merely a gift to a net capital interest. The transferee-donees did not expressly agree to become personally liable for the pre-existing obligations and such cannot be fairly implied from the receipt of the gift. 8/30/67.