In a 2-1 split decision, a recent Court of Appeal agreed with the IRS that an FLP with holdings that consisted only of Dell corporation stock had no legitimate business purpose, but was primarily an estate planning device. The dissenting opinion disagreed stating that maintaining family control is a legitimate business purpose.

If the underlying asset had not been a highly liquid, publicly traded stock, I might agree with the dissenting opinion, but I have to ask myself how some members of the FLP would be harmed if other members simply took their proportionate share of the stock out of the FLP and sold them (or held them). How would that impact the interest (value) of the other FLP members?

To read more about this case, visit my estate planning website .

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.

While not earth shattering, a Court of Appeal just issued a ruling in the above referenced case.

First, in the facts are that parents created an FLP and transferred into it their substantial holdings of Dell stock. Five days later, they gifted some of the FLP ownership interest to their children. When they filed their gift tax return they claimed valuation discounts.

The IRS argued that the transfer of the FLP interest was tantamount to a gift of the Dell stock and thus no valuation discounts should apply based upon the logic of Senda v. Commissioner; T.C. Memo. 2004-160, affd. 433 F.3d 1044 (8th Cir. 2006). The Tax Court ruled and the Court of Appeals agreed there was no “simultaneous gift”, apparently ignoring any “step transaction” arguments.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.

A family limited partnership (FLP) is not uniquely different from a limited partnership except that the participants are generally limited to family members and an FLP is often structured to receive special estate tax treatment. However, I personally haven’t created a limited partnership in years. Why?

A limited partnership is required to have one or more limited partners, and one or more general partners. The general partners have UNLIMITED liability for the partnership debts, so any time you create a limited partnership, the general partners potentially face a high risk of exposure.

By comparison, NONE of the participants of a limited liability company (LLC) have any obligation to pay the LLC’s debts. Additionally, all of the advantages of a limited partnership can also be obtained using an LLC. Thus substituting the LLC in place of an FLP adds the advantage of liability protection.

The Law Office of Roy W. Litherland is a member of the American Academy of Estate Planning Attorneys.