Limited Partnerships and LLCs – Do you want to pass business assets to your family in a structured way?

The IRS continues to attack the discounted valuation of limited partnerships and LLCs, but taxpayers have had some recent court victories. These cases are very fact-specific but have some common elements. To note a few, the discounted valuation of an entity is more likely to be respected if: there were legitimate non-tax purposes for forming the entity; there is an ability to document active management of the entity’s assets; the client refrains from the use of an entity as a “pocketbook” for personal expenses; and sufficient assets are maintained outside the entity to provide for the client’s support and the payment of estate taxes on the client’s death. Clients with limited partnerships or LLCs in existence should ensure, in consultation with counsel and other advisors, that all necessary legal formalities (e.g., tax filings, periodic meetings, etc.) are being observed.