Gifts of family limited partnership interests.

• Author: Josephs, Stuart R.
• Position: Brief Article

The question below was submitted for the annual liaison meeting held Nov. 29, 1995, between IRS Western Region representatives (including California district directors) and the California CPA Society's Committee on Taxation. This question and the Service's response were published in the committee's February 1996 bulletin, which was distributed to all society members. (Additional copies were provided for some IRS personnel at their request.)

Question: Regs. Sec. 1.701-2(d), containing the partnership anti-abuse rules, omitted former Examples 5 and 6, relating to family limited partnerships and gift tax issues that were in the previous version of these regulations.

Is the intent behind omitting these examples to remove situations described in those examples from the anti-abuse rules?

For instance, the formation of a family partnership whose sole asset consists of a vacation home was viewed under former Example 6 as lacking a business purpose. Accordingly, certain gift tax planning techniques involving the formation of a family partnership and subsequent gifts of discounted limited partnership interests to children were viewed as questionable under these previous regulations. Can we now assume that the IRS has acquiesced to this gift tax planning technique?

IRS response: The Internal Revenue Service has not acquiesced to this gift planning technique. When the Internal Revenue Service announced that Income Tax Regulation 1.701-2 would be amended to provide that it applies solely with respect...