Individuals typically transfer assets to family partnerships hoping to achieve large estate tax discounts for the assets that would not otherwise be available if the assets were retained in outright ownership. The discounts, in turn, could result in substantial tax savings. However, in order to achieve the desired results, a number of hurdles must be overcome.The Internal Revenue Service has issued Appeals Settlement Guidelines for family limited partnerships and family limited liability companies. These guidelines can help practitioners overcome some of the hurdles. By carefully examining this document and the pro- and anti-taxpayer cases examined in it, a practitioner should be in a position to craft an FLP or FLLC that will achieve a desired level of discounts for a client's estate.
As spelled out in more detail below, the ASG document focuses on four key issues - discounts for the transferred interests; includibility in the estate under Code Sec. 2036 or Code Sec. 2038; indirect gifts of the entity's underlying assets; and whether accuracy-related penalties should be imposed - and examines a number of cases addressing these issues.
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