Ever since the U.S. Tax Court began to develop its “economic substance” approach to transfer tax cases back in 1997, business appraisers have been able to glean key points on pass-through entity “reality” and basic valuation issues. But the taxpayers in Estate of Lillie Rosen v. Internal Revenue Service, 2006 T.C. Memo LEXIS 116 (June 1, 2006), didn’t have any such luck, as they formed an FLP (family limited partnership) back in 1994. By the time their case reached Judge Laro, a notable authority, he was able to produce a veritable “primer” on what not to do when trying to fit your FLP within the exceptions of IRC§2036—too late for the Rosen taxpayers, but just in time for BV appraisers, tax attorneys and advisors.
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