Following FLP Formalities

You should note that the FLP, like all tax planning strategies, is likely to be attacked by the IRS if the requisite formalities are not properly followed. Although Congress has rejected attempts by the Administration to eliminate these benefits and the IRS has not been successful in challenging the FLP in court, those who claim highly aggressive discounts or establish the FLP in near death circumstances can anticipate some level of opposition. As a general rule, if you are using the FLP to achieve estate tax savings, make sure that:

1. A credible appraisal is obtained to support the amount of the discount which is claimed. 2. The documents are properly drafted. 3. There is a sound purpose for the plan other than tax avoidance (such as asset protection or privacy).