Family Limited Partnership Formation: Dueling Dicta
17 Pages Posted: 2 Aug 2006
The IRS has invoked two gift-tax weapons in its attack on family limited partnerships: the gift-on-formation and indirect-gift arguments. While the former argument has thus far not enjoyed any success in the courts, the latter argument has been embraced by the Tax Court and the Eleventh Circuit in Shepherd and by the Eighth Circuit in Senda. Until the Eighth Circuit decision in Senda, taxpayers were able to navigate easily the indirect-gift argument by properly: sequencing the formation of the partnership and the gift of the partnership interest; or reflecting in the parent's capital account his or her contribution to the partnership. The Eighth Circuit has, however, in dicta, suggested that the indirect-gift argument can be applied in conjunction with the step transaction doctrine in order to deny discount. This article explores the partnership-formation process in light of Senda and the Eleventh Circuit's contrary dicta in Shepherd.
Keywords: family, limited, partnership, discount, gift on formation, indirect gift, step transaction doctrine, capital account, Jones, Shepherd, Senda
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