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meaning of section 2512, because the transfers were for
insufficient consideration, within the meaning of section
25.2512-8, Gift Tax Regs. I believe that a transfer to a family-
owned entity may constitute a taxable gift, even if the size of
the entity interest received by each transferor is deemed
proportional to the value of the property contributed by that
transferor.8
Consider the following hypothetical situation:9
Father, son, and daughter (F, S, and D) join in
the formation of a family limited partnership (FLP),
father making the bulk of the total contribution and
receiving a limited partnership interest, S and D
making smaller contributions and receiving general and
8 Judge Ruwe suggests a gift-on-formation analysis in his
dissenting opinion in Estate of Strangi v. Commissioner, 115 T.C.
478, 496 (Ruwe, J., dissenting), affd. in part and revd. in part
293 F.3d 279 (5th Cir. 2002). The Estate of Strangi majority
opinion, which I joined, rejects that possibility, at least on
the facts presented, on the grounds that Mr. Strangi (the
decedent) did not give up control of the assets he contributed to
the family limited partnership (for a 99 percent limited
partnership interest) and his contribution was allocated to his
capital account: “Realistically, in this case, the disparity
between the value of the assets in the hands of decedent and the
alleged value of his partnership interest reflects on the
credibility of the claimed discount applicable to the partnership
interest. It does not reflect a taxable gift.” Id. at 490.
Similarly, in Estate of Jones v. Commissioner, 116 T.C. 121, 128
(2001), we said: “All of the contributions of property were
properly reflected in the capital accounts of decedent, and the
value of the other partners’ interests was not enhanced by the
contributions of decedent. Therefore, the contributions do not
reflect taxable gifts.”
9 The hypothetical and some of the following analysis are
suggested by Professor Leo L. Schmolka; Schmolka, “FLPs and
GRATs: What to do?”, 86 Tax Notes 1473 (Special Supplement, Mar.
13, 2000).
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