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Partnership Discounts in Peril

On Behalf of | Jul 6, 2015 | Business Planning

The IRS has recently announced that they are working on a project that could impact many who hold assets in limited partnership form, especially if the partners of that partnership are family members.

In recent years when a family member makes a gift of limited partnership interests, sells those interests to a family member or a trust for a family member, or those interests are valued in their estates at death, the interest would have to be valued by an appraiser.  The appraiser would likely recognize that the values of the interests would not be as large as a pro rata value of the assets within the partnership.  These recognized discounts were supported by the appraisers (and affirmed by the courts) for various reasons, including lack of control and lack of marketability.

Ever since the IRS began to lose the tax cases that dealt with the valuation of these limited partnership interests, they have been searching for a way to eliminate the court-recognized discounts. However, they and the administration that would be backing such a change felt it needed to implement the change at a time when they had the necessary political capital.  It appears IRS officials and the administration believe this fall may be that time.

As a result, if you have considered making gifts or entering into transactions with limited partnership interests, we would recommend that you more seriously consider it in the next few months.  Further, if you would simply like to explore whether a technique using family limited partnerships might be right for you, please call our office to schedule a time to discuss this before this planning window closes.