The question

A nonresident not a citizen of the United States (NRNC) may be subject to U.S. federal gift tax on a transfer of U.S. real property. What happens if the donor transfers an interest in a continuing partnership whose assets consist solely of U.S. real estate?

The issue matters because Internal Revenue Code (IRC) § 2501(a)(2) excludes an NRNC’s transfer of intangible property from U.S. gift tax. The central question is whether the transferred interest is an intangible partnership interest or, instead, a transfer of the partnership’s underlying real estate.

This post addresses federal gift tax only. It does not address income tax, estate tax at death, state transfer taxes, securities-law restrictions, or the recipient’s tax consequences.

Threshold issue. For federal estate and gift tax, NRNC status turns on domicile, not merely on the income-tax 183-day substantial-presence test. A donor relying on § 2501(a)(2) should confirm that the donor is not domiciled in the United States.

The statutory rule

IRC § 2501(a)(1) generally imposes gift tax on transfers by gift. Section 2501(a)(2) provides:

“Except as provided in paragraph (3), paragraph (1) shall not apply to the transfer of intangible property by a nonresident not a citizen of the United States.”

If a partnership interest is intangible property, an otherwise qualified NRNC donor generally falls within this exclusion. The donee’s residence or citizenship does not itself determine whether the donor’s gift is taxable. The relevant questions are the character of the transferred property and the donor’s transfer-tax domicile.

A direct gift of a home, the land beneath it, or another interest in U.S. real estate is different. The real-property portion of the gift is not intangible property and does not qualify for the § 2501(a)(2) exclusion. Separately transferred personal property must be analyzed under its own rules.

The entity-level authority: Blodgett v. Silberman

The leading Supreme Court authority supporting an entity-level characterization is Blodgett v. Silberman, 277 U.S. 1 (1928). The case involved a Connecticut domiciliary who died owning an interest in a New York limited partnership. The partnership owned buildings and land in New York.

The Court described the interest as follows:

“The interest of a deceased partner in a limited partnership … among whose assets are buildings and land, is an interest in the surplus of assets with a right to an accounting — a chose in action. It is intangible property subject to succession tax in the state of his domicile.”

In ordinary language, the partner did not own a deed or a direct share of the partnership’s buildings and land. The partner owned a legal right to receive a share of the partnership’s net value after its debts and obligations were settled. The partner also had a right to an accounting. That legal claim is a chose in action: an intangible right.

This reasoning is important where a partnership’s assets consist entirely of land and buildings. Blodgett nonetheless treated the partner’s interest as separate from those assets.

Limits of Blodgett

Blodgett is important but not conclusive for every federal gift-tax question.

First, it was a state succession-tax case. The Court held that Connecticut could constitutionally tax its domiciliary’s intangible partnership interest. It did not interpret IRC § 2501(a)(2).

Second, Blodgett did not create a universal rule that every interest in every entity is intangible regardless of the entity’s legal form, governing law, dissolution provisions, and transaction history.

Accordingly, Blodgett is the principal authority for the entity-level view. It is not a federal gift-tax safe harbor.

The dissolution distinction: Sanchez v. Bowers

The principal contrasting case is Sanchez v. Bowers, 70 F.2d 715 (2d Cir. 1934). It did not involve an ordinary continuing U.S. partnership. It involved a Cuban marital-property arrangement, a sociedad de gananciales, governed by Cuban law.

Under the governing law, the arrangement dissolved automatically when a spouse died. Because the arrangement dissolved at death, the court treated the decedent’s rights as passing through liquidation and considered the underlying New York assets for estate-tax situs purposes (Sanchez v. Bowers, 1934).

The relevance of Sanchez is narrow but important. A court may have a stronger reason to look through an entity if it terminates at death, transfer, or another triggering event and its assets are distributed through liquidation.

For a partnership that continues after a partner transfers an interest, Sanchez is materially less applicable. The partnership continues to own its real estate and other assets. The transferee receives the departing partner’s partnership interest, not a direct deed or fractional ownership interest in the real estate.

The IRS will not provide advance ruling certainty

The IRS has placed this question on its current no-rule list. It will not issue a letter ruling on whether a partnership interest is intangible property for purposes of § 2501(a)(2) (Internal Revenue Service [IRS], 2026).

The no-rule list is not substantive guidance. It does not resolve the issue for or against taxpayers. It means only that a taxpayer cannot obtain an advance IRS letter ruling on this precise classification question.

The resulting uncertainty is real. The statute clearly excludes gifts of intangibles. The unresolved question is whether a particular partnership interest qualifies as intangible property for this purpose.

A recently formed partnership

What happens if a donor contributes U.S. real estate to a new partnership and immediately gives the partnership interest to a family member?

The partnership may not change the tax result if those steps are part of one prearranged transaction. A court may treat the donee as receiving the underlying property directly.

I have not identified a reported decision that applies this result to an NRNC’s gift of an interest in a longstanding partnership that owns U.S. real estate. General indirect-gift and substance-over-form doctrines may nevertheless apply when the property contribution and the gift are not genuinely separate transactions.

The most relevant partnership case is Senda v. Commissioner, 433 F.3d 1044 (8th Cir. 2006). It did not involve an NRNC or real estate. The taxpayers formed family limited partnerships, transferred publicly traded stock, and transferred partnership interests to their children. The court found that the taxpayers did not establish that they contributed the stock to the partnerships before they transferred the partnership interests. The result was an indirect gift of the underlying stock rather than a discounted gift of partnership interests (Senda v. Commissioner, 2006).

Senda does not establish a general look-through rule for every partnership. Its lesson is evidentiary and transactional. An entity may not change the nature or value of a gift if the contribution and gift are effectively simultaneous, prearranged steps with no independent significance.

Facts that may support separate-transaction treatment

The following facts do not guarantee the intended gift-tax treatment. They may, however, support the position that the partnership contribution and the later gift were genuinely separate transactions:

  • The partnership existed and operated for a meaningful period before the contemplated gift.
  • The partnership had a real business or investment purpose apart from the gift.
  • The partnership respected its capital contributions, books, tax returns, K-1s, bank accounts, and governance procedures.
  • The partnership continues after the gift.
  • The documents reflect a transfer of a partnership interest, rather than a direct or automatic distribution of real estate.

Estate tax is separate

The analysis above concerns a completed lifetime gift. Estate tax at death uses a different statutory framework. It asks whether the decedent held property situated in the United States.

For an NRNC’s lifetime gift, § 2501(a)(2) can exclude an intangible partnership interest even if that interest has a U.S. connection. For estate tax, however, an intangible interest can sometimes be U.S.-situs property. Therefore, a favorable lifetime gift-tax result does not automatically eliminate estate-tax risk if the donor dies while holding the partnership interest (Spencer, 2021; Tax Adviser, 2025).

Estate-tax situs authorities provide helpful background on entity and aggregate theories. They should not be substituted for the distinct § 2501(a)(2) lifetime gift-tax analysis.

Conclusion

The strongest argument is that an interest in a continuing partnership is an intangible legal right: a right to distributions, allocations, and an accounting. This remains true even if the partnership owns only U.S. real estate. Blodgett is the principal authority for that proposition.

For a foreign-domiciled NRNC donor, this characterization supports application of § 2501(a)(2). The argument is stronger where the partnership is longstanding, operational, and continues after the transfer.

The result is not free from doubt. The IRS will not rule on whether a partnership interest is intangible under § 2501(a)(2). In addition, an artificial contribution-and-immediate-gift transaction may invite an indirect-gift or substance-over-form challenge. The analysis should account for the partnership agreement, transfer documents, entity history, donor’s domicile, and the timing of any planned sale or liquidation.

References

Blodgett v. Silberman, 277 U.S. 1 (1928). https://supreme.justia.com/cases/federal/us/277/1/

Internal Revenue Service. (2026, January 5). Revenue Procedure 2026-7: Areas in which rulings will not be issued, Associate Chief Counsel (International). Internal Revenue Bulletin, 2026-2. https://www.irs.gov/irb/2026-02_IRB

Internal Revenue Code, 26 U.S.C. § 2501 (2025). https://www.law.cornell.edu/uscode/text/26/2501

Sanchez v. Bowers, 70 F.2d 715 (2d Cir. 1934). https://law.justia.com/cases/federal/appellate-courts/F2/70/715/1491992/

Senda v. Commissioner, 433 F.3d 1044 (8th Cir. 2006). https://law.justia.com/cases/federal/appellate-courts/F3/433/1044/546075/

Spencer, J. (2021). An alternate approach to situs determination for partnership interests. ACTEC Law Journal, 46(3), Article 5. https://scholarlycommons.law.hofstra.edu/acteclj/vol46/iss3/5

Tax Adviser. (2025, April). Estate tax considerations for non-US persons owning US real estate. https://www.thetaxadviser.com/issues/2025/apr/estate-tax-considerations-for-non-us-persons-owning-us-real-estate/