Following FLP Formalities

You should note that the Family Limited Partnership, like all tax planning strategies, is likely to be attacked by the IRS if the requisite formalities are not properly followed. Although Congress has rejected attempts by the Administration to eliminate these benefits, those who claim highly aggressive discounts or establish the FLP in near death circumstances can anticipate some level of opposition. As a general rule, if you are using the FLP to achieve estate tax savings, make sure that:

1. A credible appraisal is obtained to support the amount of the discount which is claimed.
2. The documents are properly drafted.
3. There is a sound purpose for the plan other than tax avoidance (such as asset protection or privacy).

The position that the IRS will take in estate tax matters concerning the Family Limited Partnership is set forth at:

Click to access asg_penalties_family_limited_pships_finalredacted10_20_06.pdf