Steve Akers, Associate Fiduciary Counsel, Bessemer Trust, provides the following summary of Price v. Commissioner, T.C. Memo 2010-2 (January 4, 2010):
Gifts of limited partnership interests by parents to their three children did not constitute present interest gifts that qualify for the gift tax annual exclusion. The court stated that the present interest requirement is satisfied if the donee has immediate enjoyment of either the donated property or the income from the property.
As to the partnership interest itself, the donees had no ability to withdraw their capital accounts and the partners could not sell their interests without the written consent of all other partners.
As to the income, (1) there was no steady flow of income, and (2) distribution of profits was in the discretion of the general partner and the partnership agreement specifically stated that distributions are secondary to the partnership's primary purpose of generating a long-term reasonable rate of return.
Perhaps most interesting is that the IRS pursued this annual exclusion argument in litigation even though there were only three donees and even though there were over $500,000 of actual distributions to the children from the partnership's creation in 1997 to 2002.
This case presents additional hurdles to being able to qualify gifts of limited partnership interests for the gift tax annual exclusion. Several drafting suggestions will assist in countering the court's objections.
Click here for a summary of Price and planning implications.
Posted by Marc Patterson, Managing Associate Editor, Wealth Strategies Journal.
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