Originally published on PAOO on December 31, 2009.
The Estate of Samuel Black is another win for taxpayers on the issue of whether interests in family limited partnerships should be valued based on the fair market value of the underlying assets or the partnership interest, which will have a discounted value. Like most of these cases, the discussion of the facts reads something like a novel. Mr. Black was born in 1902 and was selling bread on a street corner at the age of 11. He goes to work for an insurance company and quickly rises in the ranks as the company grows. When he dies at the age of 99 having not missed a single board meeting in 67 years, his estate is well north of $100,000,000.
All is not well though a son with a troubled marriage and two grandsons, who at the age of 20 have never had jobs concern him. So he starts a family limited partnership to protect his fortune from there future improvidence. Incidentally, the technique saves many millions of estate tax dollars. The IRS and the executor agreed on what the discount should be if there was one. Sadly it is not stated what the discount was. There might be a way to infer it from the numbers, but I couldn’t come up with it.
The other taxpayer win was Keller, which was really an amazing one. It was a refund case. The taxpayer had died before the partnership was funded, but the transaction was far enough along that the court allowed the valuation discount since they saw that the funding was committed. The thing I really like about this case was that the accountant really comes off as a hero.
The two IRS wins, Jorgensen and Linton, were, as usual, failures of execution. The entities weren’t respected. Personal bills were paid with partnership funds and partnership expenses were paid with personal funds. In Linton, the documents made it ambiguous as to which came first the funding or the gift. Jorgensen’s son commented that he just couldn’t “get his head around” the idea that the partnership wasn’t just like a bank account.
Ironically some of the facts that weighed against Jorgensen, a passive buy and hold strategy and continued control by the donor, were seen as positives for Black. As I wrote in one of my previous blogs, the devil is in the details