[the] LLC, and [the] LLC is not disregarded under the ‘check-the-box' regulations to treat the transfers as transfers of a proportionate share of assets owned by LLC.”   The IRS wanted the opposite result so it could disallow valuation discounts taken for lack of control and lack of marketability.

P transferred cash and publicly traded securities to LLC, a New York limited liability company, in exchange for a 100-percent interest in LLC. P subsequently made four transfers of her interest in LLC to trusts established for the benefit of her son and granddaughter: P transferred as a gift a 9.5-percent interest in LLC to each trust and then sold a 40.5-percent interest in LLC to each trust in exchange for a promissory note. In valuing the transfers for Federal gift tax purposes, P applied substantial discounts for lack of marketability and control and therefore paid no gift tax on the transfers.

R argues, inter alia, that the transfers should be treated as transfers of the underlying assets of LLC because a single-member limited liability company is a disregarded entity under the “check-the-box” regulations of secs. 301.7701-1 through 301.7701-3, Proced. & Admin. Regs.

Held: For purpose of application of the Federalgift tax, the transfers are to be valued as transfers of interests in LLC, and LLC is not disregarded under the “check-the-box” regulations to treat the transfers as transfers of a proportionate share of assets owned by LLC.