Tax court upholds FLP disallowance.(family limited partnership, Estate of Harper)

In Estate of Harper, TC Memo 2002-121, the Tax Court ruled that a limited partnership formed by a decedent and funded with a majority of his assets was defective; thus, the property was includible in his estate. The court also upheld the IRS's valuation of the estate's assets.

Background

A typical family limited partnership (FLP) is an excellent estate planning tool. Through gifting, it allows for the transfer of assets to younger family members, with significant discounts. A FLP is generally established by an older family member transferring assets tax free in exchange for a partnership interest. Partnership interests are then gifted or sold to younger …