FLP update – Surviving the latest IRS challenge
Abstract: For years, the IRS has used a variety of tactics to challenge family limited partnerships (FLPs). In 2008, it took a relatively new approach — arguing that transfers of partnership interests in an FLP were actually taxable indirect gifts of the assets held by the FLP. But the U.S. Tax Court rejected the IRS’s argument, as well as its claim that the “step transaction” doctrine applied, in the latest case to consider this argument, Gross v. Commissioner. This article summarizes the facts and findings of Gross and suggests ways practitioners can help an FLP survive IRS challenge.