Planning and Execution of Family Limited Partnerships

Forbes recently published an article that discusses why taxpayers lose Family Limited Partnership cases. The article analyzes Estate of Paul H. Liljestrand v. Commissioner, TC Memo 2011-259 (Nov. 2011) to pinpoint actions during the creation and execution of an FLP that can cause a taxpayer to later lose his or her case.

Typically, the error is not with the plan itself, but with the failure of those involved to follow the steps required for each transaction. Formation of a FLP requires coordination between the preparing attorney and the accountant who will prepare relevant returns. Mistakes should be corrected by a transfer of funds, not by creating a journal entry that describes an indefinite “IOU.” Additionally, it is important to remember that the only payments that belong to an entity are the ones that go in and out of the entity’s account.

See Peter Reilly, Family Limited Partnerships Require Good Planning and Execution, Forbes, Nov. 11, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.