Academic journal article Journal of Accountancy

IRS Takes Aim at Family Partnerships

Academic journal article Journal of Accountancy

IRS Takes Aim at Family Partnerships

Article excerpt

The IRS has declared war on family limited partnerships (FLPs). It is in the middle of an aggressive audit program testing the validity of such partnerships for estate and gift tax (transfer tax) purposes.

In revenue ruling 93-12, the IRS agreed with earlier court decisions that allowed minority and marketability discounts for transfers of FLP interests.

Since publishing that FLP-friendly ruling, however, the IRS has issued several other rulings that deny discounts for transfers of limited partnership interests (PLRs 9719006, 9723009, 9725002, 9725018, 9730004, 9735003, 9735043 and 9736004).

Much of the IRS's current position is based on IRC sections 2703 (enacted to address the effect of buy/sell agreements and options on the value of closely held business interests) and 2704, "Treatment of Certain Lapsing Rights and Restrictions." These sections are both part of chapter 14 of the tax code and were included in legislation enacted by Congress in 1990.

If challenges based on sections 2703 and 2704 fail, the IRS may assert that the formation of the partnership itself and the transfer of partnership interests rather than the underlying assets are merely a device to transfer wealth to the transferor's heirs at a discounted value.

Accordingly, taxpayers must make sure that the facts surrounding their use of the limited partnership structure do not warrant IRS challenge. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.