The New York Times recently wrote that the IRS was about to tighten the rules on the abuse of “Limited Family Partnerships,” a legal structure that many wealthy families use to reduce their tax burdens. The use of limited family partnerships, or Family Limited Liability Corporations or LLCs can provide protection for family owned businesses, real estate and other assets that are not readly “liquid”, or are hard to accurately value.
The IRS is concerned as many families have used these vehicles to “hide” cash, securities or other assets that are easily valued. The IRS has also expressed concern that family members deeply discount the value of their shares in the limited partnerships or LLCs themselves in an attempt to reduce their tax burden.
Another strategy is to significantly undervalue the assets placed in these vehicles in order to escape estate taxes. Once a death has occured, the property is sold for a much greater value than reported through the partnership or LLC, and then the trust holds the cash until the statute of limitations on the estate tax has passed before distributing the proceeds to the beneficiaries, avoiding a substantial amount of taxible income.
The U.S. Treasury Department shares the IRS’ concerns and is about to release new regulations as to the types of assets that family limited partnerships or LLCs could contain. The White House recently estimated that closing this loophole could bring in more than $18 Billion in new tax revenue over the next 10 years.
If you are concerned about the assets that are currently placed in your family limited partnership or Family lLmited Liability Corporation (Family LLC) we invite you to call for a free and substantial consultation at 866-631-3470.