A new Tax Court case appears to create a blueprint for passing assets to heirs through a family limited partnership (FLP).
Alert: The new case upholds a formula clause for valuing the FLP interests passed to other family members. (Wandry, TC Memo 2012-88) The IRS has sometimes successfully challenged such clauses in the courts, but this time the Tax Court sided with the taxpayers.
However, the Wandry case is only a Tax Court Memorandum opinion. The IRS may yet appeal the decision or Congress could shoot down the technique. Until then, it’s fair game.
Here’s the whole story: When you set up an FLP, you transfer assets, typically interests in a closely held business or investment real estate, to a limited partnership. You may act as the general partner while other family members, such as adult children, are named as limited partners. The older generation then gives shares to younger family members like grandchildren.
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