In Uncategorized on 03/17/2016 at 17:36

Judge Gerber sends the message to Estate of Sarah D. Holliday, Deceased, Joseph H. Holliday, III, and H. Douglas Holliday, Personal Representatives/Executors, 2016 T. C. Memo. 51, filed 3/17/16. And the only pot of gold in this tale is the one IRS grabs from Joseph H. and H. Douglas, with $785K in it (plus interest).

The late Sarah and her even later husband were “frugal and accumulated substantial assets,” 2016 T. C. Memo 51, at p. 2. Joseph H. and H. Douglas wanted to make sure the late Sarah’s frugality descended to her descendants without the IRS’ shortstopping.

So although later husband set up trusts, Joseph H. and H. Douglas flipped for a FLP. And their Tennessee approach gives the game to IRS.

“Section 5 of… limited partnership agreement, however, provides, in part: ‘To the extent that the General Partner determines that the Partnership has sufficient funds in excess of its current operating needs to make distributions to the Partners, periodic distributions of Distributable Cash shall be made to the Partners on a regular basis according to their respective Partnership Interests.’ 2016 T. C. Memo. 51, at pp. 5-6.

The late Sarah has a 99.9% limited partner’s interest in said FLP, and did get a check. Once.

Mox nix, argue Joseph H. and H. Douglas. “When asked at trial what he believed the term ‘operating needs’ meant, Mr. Holliday [Joseph H.] testified: ‘[I]t seemed to me when I reviewed this document, when it was signed, that it was created, that this seemed to come from some sort of boilerplate for Tennessee limited partnerships, this sort of gave you broad powers to do anything you needed to do, including make distributions. But that wasn’t necessary. No one needed a distribution.” 2016 T. C. Memo. 51, at p. 10.

Sorry, Joseph H., that’s enough to sink you.

“Section 5 of [FLP’s] limited partnership agreement unconditionally provides that decedent was entitled to receive distributions from [the FLP] in certain circumstances. Further, Mr. Holliday’s testimony makes it clear that had decedent required a distribution, one would have been made. On the basis of the facts and circumstances surrounding the transfer of assets to [FLP], we believe that there was an implied agreement that decedent retained the right to ‘the possession or enjoyment of, or the right to the income from, the property’ she transferred to [FLP]. See sec. 2036(a)(1).” 2016 T. C. Memo. 51, at pp. 10-11.

And of course the late Sarah never got full and fair consideration for the millions in marketable securities she handed over to the FLP.

Joseph H.’s and H. Douglas’ claim of theft prevention and caregiver abuse go by the boards, as one of them saw the late Sarah weekly. And the late Sarah held onto a lot of assets that never made it into the FLP, so protection from predatory tort lawyers is a wee bit far-fetched. And trusts would have worked as well, since the late Sarah’s even later husband’s trusts worked fine. The only reason for a FLP was to dodge taxes.

Takeaway—Remember the “TEN DOLLARS and other good and valuable consideration” blowing up a conservation easement deduction. Watch those boilerplate provisions. Boilerplate can be hazardous to your tax health.

  1. […] Taishoff covered the case.  His post was titled Boilerplate Is A Hazardous Substance referring to a detail in the decision, I passed […]


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