In Estate of Kelley v. Commissioner, an October 2005 decision, the Tax Court reviewed the case of an estate of a taxpayer who died owning 94.83% of the units of an investment family limited partnership that consisted solely of (two-thirds) cash and (one-third) certificates of deposit.
The discount percentages proposed by the taxpayer’s and IRS’s agents, and the order of the Tax Court, are set forth on the following table:
NATURE OF DISCOUNT
| PERCENTAGE OF DISCOUNTS
CLAIMED BY
Taxpayer IRS
| ORDER OF
TAX COURT
|
Minority
| 25
| 12
| 12
|
Marketability
| 38
| 15
| 23
|
Combined
| 56.2*
| 25.2*
| 36*
|
* the discounts are applied sequentially, therefore they do not total
This decision is especially significant because the only issue was the valuation discounts applicable to the limited partnership interests in the taxpayer’s federal estate tax return. The result in this case – passing cash and cash-type assets to the next generation at a 36% discount from face value – is yet another victory for taxpayers who establish family limited partnerships and underscores the substantial savings in estate taxes that can be achieved when most of the assets are investment-type assets, such as cash, certificates of deposit, and marketable securities.
Please do not hesitate to contact us if you have any questions about achieving estate tax savings.