Family Holding Companies and Section 2036

Abstract:     
For many years the Internal Revenue Service has sought to defeat the use of family limited partnerships and family limited liability companies (family holding companies) to achieve valuation discounts for transfer tax purposes. In this effort the Service has employed numerous theories and strategies, with varying success. This commentary considers the most recent theory advanced by the Service - that assets transferred to a family holding company are includible in the decedent's estate, at their full, undiscounted value, under sectopm 2036 of the Internal Revenue Code. This commentary provides a simple roadmap to the government's position on this issue, as articulated in several recent cases. The purpose of the commentary is not to discuss these cases in detail, but rather to explain the government's position in general terms, with the goal of assisting practitioners in structuring transactions to avoid the problems identified.

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