The IRS has long been upset that courts have allowed wealthy families to put their assets in family partnerships or limited liability companies and receive tax discounts on assets that have an easy to determine value. New regulations are expected soon that could put an end to the IRS's consternation.
The idea behind family partnerships and LLCs is rather simple. These vehicles allow families to jointly own assets and provide an easy way for those assets to be distributed if one of the family member owners passes away.
The practice began as a way to handle control of family-owned businesses. However, when a family-owned business is owned by a family legal entity, the only way anyone else could buy into the business is by becoming a member of the partnership or LLC.
For this reason difficult to value property, like businesses, have traditionally received a valuation discount for tax purposes. The theory was that because of the nature of the ownership situation, third-party buyers would expect a discounted price.
The IRS began to have problems however when wealthy people began putting easy to value property into the family partnerships, such as securities and even cash. Many people sought to get tax discounts on that property, and when challenged by the IRS, the wealthy people often won in court.
Now, backed by the Obama administration, new regulations are expected to put an end to the practice as reported recently by the New York Times in "Navigating Tougher I.R.S. Rules for Family Partnerships."
What precisely the new rules will contain is still unknown. However, if you use a family partnership, now would be a good time to speak with your estate planning attorney to see what, if any, changes you need to make. For more information, please visit our website www.estateandprobatelawyersmi.com