Is It Really Abusive?

The IRS crackdown on what it callsabusive tax schemes received a lift when aUS federal court invalidated the terms offamily limited partnerships, a methodoften used to pass wealth on to childrenand grandchildren without incurring thegift tax. Under the plan, a donor givesassets to a partnership and then issues thebulk of the shares in the partnership totheir children, holding on to as little as1%. But by acting as general partner anddesignating the other shareholders as limitedpartners, the donor may retain decision-making control. That's what botheredthe tax court in the case of AlbertStrangi, who, the court ruled, had held onto too much control. As a result of thecourt decision, which is likely to beappealed, all shares in the family partnershiprevert to Strangi's estate, nearly doublingthe amount subject to estate taxes.