Recently, the Tax Court held that gifts of limited partnership interests made by a decedent during his life were gifts of present interests that qualified for the annual exclusion, currently $13,000.00 per person per donee. Estate of George H. Wimmer, TC Memo 2012-157. Internal Revenue Code Section 2503(b) provides that the first $13,000.00 of gifts made to any person are free of gift tax if they are not gifts of future interest in property. Under regulations, a present interest is an unrestricted right to immediate use, possession, or enjoyment of property or the income from property. Treas. Reg. § 25.2503-3(b).
The gifts at issue were gifts of limited partnership interests, which did not provide the donees with unrestricted and non-contingent rights to immediate use. The court held that the gifts nonetheless qualified as present interests because the donees received rights to the income, based on ownership of the interests. Therefore, the Tax Court found that the limited partners received a substantial present economic benefit, and the gifts qualified for the annual exclusion.
The IRS has heavily scrutinized gifts of limited partnership and family LLC interests over the last several years. Caution is advised in drafting limited partnership agreements that may so restrict transfers, or fail to provide income to the owners, such that a gift would fail to qualify for the annual exclusion, if such exclusion is desirable.
About the author: David Elliott excels at critical thinking and strategic planning. He enjoys solving problems. He received his B.A. in mathematics from Vanderbilt University, magna cum laude, and his J.D. from Duke University School of Law. He writes articles on a myriad of subjects he finds interesting and in which he practices, including tax, finance, estate planning, corporate governance and strategy, transactions, and immigration. Mr. Elliott can be reachedhere.