A brand new Tax Court Memo ruling gives us yet another glimpse into how the IRS defeats Family Limited Partnerships (FLPs). See Estate of Gore v. Commissioner, T.C. Memo. 2007-169 (6/27/07).

After transferring funds to the FLP, the decedent did not execute any other documents confirming any transfer of assets to the partnership. The FLP never operated a business, engaged in any investment activity, or held legal title to any assets.

Decedent’s daughter deposited dividends and interest into the decedent’s personal bank accounts from the assets which had supposedly been contributed to the FLP. Also, the individual stocks were still registered in the decendent’s and her pre-deceased husband’s names. It wasn’t until three months after she died that the FLP delivered stock certificates to the custodian…

The estate tax return did not include these assets that were purportedly contributed to the FLP. On exam, the IRS added the value of those assets to the taxable estate, because, it argued, the transfer was incomplete and the assets remained part of the estate.

The Tax Court agreed and held that her post-contribution 1) exercise of control 2) personal use of those assets, and 3) lack of credible evidence the FLP held legal title to the assets, rendered the transfer incomplete. Therefore, the assets were includible in her estate.

So, where the popular press may lead us to believe FLPs are dead or dying, the reality is that bad facts produce bad results every time.

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