Family Limited Partnership Cases From 2011
Mr. Guistina owned his timber properties in a family limited partnership in which he was the largest partner, owning 41.128% of the Giustina Land and Timber Company Limited Partnership (GLT). The gross value of the partnership’s assets was $150,000,000. The Tax Court considered the value of the properties based on a Columbia Financial Advisors’ appraisal of $12,678,117. The estate hired another appraiser who came up with a value of $33,515,000. The Tax Court then ended up with a value of $27,454,115. Even though the filed value was less than half of the “correct value,” the Court did not allow the IRS to assess a penalty. Hypothetically, however, had Mr. Guistina received the 19,000 acres that represented the whole of the properties in the FLP prior ot his death and had held onto the acres at the date of his death, the properties would be worth at least $60,000,000.
In the end, the Tax Court in Estate of Natale B. Giustina, et al. v. Commissioner, TC Memo 2011-141 used the discounted cash flow value determined by the estate’s appraiser, as adjusted, and a liquidation value. This decision gave the discounted cash flow method a 75% weight and no discount for lack of control was allowed. The Court decided to base the primary valuation of the partnership on the discounted present value of the cash flow since Mr. Giustina could not force a sale of the assets. A discount for lack of marketability of 25% was allowed, but it was only applied to the operating value and not the liquidating value.
See Peter J. Reilly, 6 Family Limited Partnership Developments in 2011, Forbes, Dec. 30, 2011.
Special thanks to Jim Hillhouse (Professional Legal Marketing, PLM Inc.) for bringing this article to my attention.