Family Limited Partnership discounts may be in jeopardy

Rep. Earl Pomeroy (D-ND) has introduced H.R. 436.  In addition to setting the federal  estate tax exemption at $3.5 million and imposing a marginal tax rate for estates over that amount of 45% (50% for estates between $10 million and $23.5 million), the bill would limited many discounts associated with the use of family limited partnerships.

Here is a description of the proposed change from Bill Introduced May Limit Family Limited Partnership Discounts, BracewellGiuliani.com, Jan. 16, 2009:

HR 436 becomes law, appraisers would not be allowed to apply any discounts to “non-business” assets held by partnerships or other entities. Instead, those assets would be valued as though they were transferred directly to the recipient.  [For example, if ] $1,000,000 [is] held by the partnership [in] cash or marketable securities, a 10 percent interest would be valued for gift and estate tax purposes at $100,000, even if a willing buyer might pay only $60,000 for the interest.  In addition, if a family controls an entity which is not “actively traded,” in contrast to current law, no discounts will be allowed for the transferee’s lack of control of the entity.