FLPs and the Kelley Case

Prof. Wendy Gerzog (University of Baltimore School of Law) has recently posted her article entitled Kelley: A Green Light for FLPs on SSRN. It was originally published in 109 Tax Notes 1467 (2005).
   

Here is the conclusion of her article:
   

It seems remarkable that, close to death, a taxpayer can take completely liquid assets, transfer them to an FLP, and have the value of those dollars reduced by approximately 30.57%. Of course, it seems remarkable to me that the definition of seller — even a hypothetical seller under the regulations — doesn’t inherently describe a person trying to get the highest (and not the lowest) price for his product. However, because the FLP game is to convert liquid assets into illiquid ones to reduce estate (or gift) taxes, Kelley is another success story. On one hand, the estate was lucky: The government should have originally asserted a much smaller lack-of- control discount. On the other hand, the right of first refusal in the partnership agreement was a principal reason for allowing the estate an additional lack-of-marketability discount of 3%.