Tax Court Analyzes Gifts of Interests in FLPs

Wendy C. Gerzog (Professor of Law, University of Baltimore School of Law) recently published her article, which discusses Price v. Commissioner, entitled The Price of an FLP Annual Exclusion, 128 Tax Notes 1075 (Sept. 2010). The analysis and conclusion are below:

Not surprisingly, the court found no meaningful difference between Price and Hackl. Under the FLP agreement in Price, the donees were not given a present, substantial economic benefit. Distributions were dependent on the discretion of the general partner or the partners who held a majority of all the FLP interests. Under the FLP agreement, the donees were restricted in their ability to withdraw from their capital accounts and their ability to transfer their interests to others. The argument that the donees’ increased asset holdings allowed them to borrow more funds doesn’t differ much from the same argument that the donees’ possession of a vested remainder interest allows the same result, and a vested remainder is clearly a future interest denied the annual exclusion.

It is ironic, of course, that taxpayers who claim hefty discounts because of the incapacitating marketability restrictions on their FLP or family LLC interests argue that those same limitations are nonexistent for annual exclusion purposes. Consistent with case law and the regulations on the annual exclusion, Price is a good opinion with a logical result.