The estate tax reaches only gratuitous transfers. Thus, transfers made for full and adequate consideration in money or money’s worth are not taxed. In instances where only partial consideration is paid the Code provides, “the amount by which the value of the property exceed[s] the value of the consideration shall be deemed a gift.” However, this effect can be negated by the business transaction exception. Under the business transaction exception, even though the consideration received by the transferor is not the economic equivalent of the property given up, if there is a bona fide business reason for the transfer and no intent to make a gift, the transfer will not be subject to tax. What constitutes a bona fide business reason is subjective but the courts have found where a decedent sold property for less than its fair market value to pay off a third person’s debts that he had guaranteed satisfied the valid business reason requirement.
