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Troubleshooting checklist for family limited partnerships

by Tony Novak, CPA, MBA, MT
, revised 11/28/2011

Family limited partnerships (FLP) were a popular way for family businesses to protect assets and reduce estate taxes over the past two decades. They were especially popular for holding stock and real estate that was intended to pass from parents to children. In recent years the IRS and Tax Court took a tougher stance on these tax shelters. Most financial advisers have modified the format of the FLPs they recommend now to comply with the more conservative legal positions. Many FLPs set up years ago and not recently updated could be held invalid by the IRS, making them useless for reducing taxes after the death of a parent.

Your FLP could be in trouble if any of the following apply:

While none of these factors is by itself a fatal blow to the tax status of an FLP, the occurrence of any of these is good reason to schedule an overall financial review. The FLP might either be updated or exchanged for a more secure legal format like a family limited liability company.

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Opinions expressed are the solely those of the author and do not represent the position of any other person, company or entity mentioned in the article. Information is from sources believed to be reliable but cannot be guaranteed. Any accounting, business or tax advice contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues or a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. Tony Novak operates as an independent adviser under the trademarks "Freedom Benefits", "OnlineAdviser" and "OnlineNavigator" but is not a representative, agent, broker, producer or navigator for any securities broker dealer firm, federal or state health insurance marketplace or qualified health plan carrier. He has no financial position in any stocks mentioned. Novak does work as an accountant, agent, adviser, writer, consultant, marketer, reviewer, endorser, producer, lead generator or referrer to other companies including the companies listed in the articles on this web site.   |  (800) 609-0683  |  Cell/Text: 856-723-0294  |