Analysis: Why Section 2036 Does Not Work Effectively in Many Family Limited Partnership Audits and What Can be Done About It

Date

2015

Authors

Law, R. Zebulon
McNaughton, Shaun

Journal Title

Journal ISSN

Volume Title

Publisher

Texas Tech Estate Planning & Community Property Journal

Abstract

Focuses on the family limited partnership (FLP) discounting technique used in discount estate planning, and describes how the authors have seen the Internal Revenue Service (IRS) apply section 2036 of the Internal Revenue Code (section 2036) in an audit to effectively negotiate, mitigate, or possibly eliminate the discount in an estate plan. In the typical FLP audit, the IRS applies section 2036 (as to the FLP) in a haphazard manner, and some audits involve extended document requests, which require time consuming and expensive responses. Argues that there are no substantially fair ground rules involved with a section 2036 audit. As a result, the FLP audit process is often costly and does not work effectively. Suggests several possible improvements to the estate tax audit process in cases involving FLPs. Additionally, points out the inherent dichotomy between sections 2036 and 2001(f) in many FLP cases, and encourages practitioners to fight against 2001(f) transgressions.

Description

Keywords

Family limited partnership, FLP, Partnership, Discount, Estate planning, Audit, State taxes, IRS, IRC, Section 2036

Citation

R. Zebulon Law & Shaun McNaughton, Analysis: Why Section 2036 Does Not Work Effectively in Many Family Limited Partnership Audits and What Can be Done About It, 7 Est. Plan. & Cmty. Prop. L. J. 475 (2015).