Tax Court Decision a Win for Family-Owned Businesses

9:09 pm Asset Protection, Estate Planning, Tax Planning

IRS Logo 150x150 Tax Court Decision a Win for Family Owned BusinessesA U.S. Tax Court decision in Wandry v. Commissioner has been called a “landmark decision” because it allows for ownership transfers from one generation to another tax-free, according to a Wall Street Journal report.

The facts of the Wandry case are as follows:  The Wandrys, a Colorado married couple, each gave units in their family-owned LLC worth $1,099,000 to heirs in 2004, when the lifetime exemption was $1 million and the annual exclusion was $11,000.  They specified that the gifts should equal the dollar amount of their exemptions, since the value was unknown at the time of the gifting.

A subsequent IRS appraisal found that the value of the gifts had risen almost 20 percent, and the IRS went after the Wandrys for gift taxes on the additional value.  However, the Tax Court said that the Wandrys intended to make a gift equal to their exemptions, so the excess was never given by them – and therefore could not be taxed.

The Wandry case is a memorandum decision by the Tax Court, which means it can be cited as precedent for future cases.  This decision bodes well for family-owned businesses as well as wealthy families using family limited partnerships or entities holding stocks.

The IRS has three months to decide whether or not it will appeal the case, so those contemplating a strategy similar to Wandry should consult with an Orange County estate planning attorney before proceeding.

Contact us today for individualized planning strategies to meet your unique needs.


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