Date of Award
Master of Science
Dr. Rita M. Kottmeyer
Gary L. Schroeder
John F. Spude
The focus of this report is on using family limited partnerships to reduce wealth transfer taxes. This report will explain how valuation discounts applicable to family limited partnership interests enable wealth to be transferred which avoids gift and estate tax. Furthermore, the report will discuss why some family partnership valuation discounts are accepted by the IRS and others are rejected, including steps taxpayers and their professional advisors can take to increase their chances of success.
Senior family members throughout the U.S. have a growing interest in preserving their wealth for the next generation. Many are not aware that 55% or more of their wealth will disappear without proper lifetime planning. Family limited partnerships are incredibly useful vehicles to avoid this result and accomplish other non-tax objectives. A critical factor in successful wealth transfer planning using family partnerships is engaging experienced professional advisors, including those with legal, tax, and financial appraisal credentials.
The internal Revenue Service perceives family partnerships as a threat to the U.S. transfer tax revenue base. They have openly stated their goal of reducing or eliminating family partnerships ,as a wealth transfer vehicle. Towards this end. the [RS has launched attacks against family partnerships on several fronts. including legal and tax based arguments, valuation adequacy challenges, and legislative attacks, all with varying degrees of success.
This report will explain (1) the factors driving the demand for wealth transfer planning, (2) our system of transfer taxation, (3) the tax and non-tax benefits of family partnerships, (4) family Limited partnership valuation methodology, (5) threats to family partnerships, and (6) the future of family partnerships.
The results of this study indicate that, despite IRS threats, taxpayers can achieve great success in accomplishing tax and non-tax objectives using family limited partnerships. There are specific steps taxpayers can take which will increase the odds that their planning and valuation discounts will stand up to an IRS challenge and result in tax savings. Avoiding what the IRS considers "abusive" family partnership situations, engaging a qualified professional appraisal firm to support valuation discounts, and retaining an experienced legal advisor all work to achieve success.
Some experts in the field expect a landmark U.S. Tax Court ruling, or new federal law, to curtail family partnership valuation discounts. In the meantime, there is a tremendous window of opportunity for those who act now.
Krekeler, Steven J., "The Valuation of Family Limited Partnership Interests" (1998). Theses. 113.