Partnership Question

[S T]

I have a partner in a Partnership that wants to gift out part of her 20% interest using the
$ 13,000 annual gift amount to several children. The partnership now is a husband and wife. Wife is ill and wants to transfer $ 13,000 to Son, $ 13,000 to daughter, and $ 13,000 to daughter-in-law. Can she also gift to husband $ 13,000?

Am I understanding that the form 8308 will not have to be filed? What confuses me is the statement in the instructions

No returns or statements are required under section 6050K if the transfer was not a section 751(a) exchange. For example, a transfer which in its entirety constitutes a gift for federal income tax purposes is not a section 751(a) exchange.

In this case it is a Retail Business so I do have some Merchandise Inventory (runs about $ 100K per month consistently)? And then there are the other assets such as Goodwill, Equipment, etc. However, trying to stay within the $ 13,000 per person per year Gift Laws, and trying not to create any taxable gain to the wife on the transfer.

Then of course the taxpayer wants to make it effective for 2010 - partnership and all individual returns are on extension.


Sandy

[ChEAr$]

Keep in mind that legally the partnership will have to admit the 2 new partners.

Wouldn't this be a good opportunity for the two partners to incorporate the business and then the wife can give the two children enough stock to be under the $13,ooo. Or, if wife thinks she can't give more than that (some have that impression), she and husband may jointly give $26000 total to each kid. Gift tax return to be filed of course.

And if I remember right, there is no $13,000 figure applicable for interspousal transfers.

[Burke]

And if I remember right, there is no $13,000 figure applicable for interspousal transfers.

True. Marital transfers are unlimited.

[Burke]

I have a partner in a Partnership that wants to gift out part of her 20% interest using the $ 13,000 annual gift amount to several children. The partnership now is a husband and wife. Wife is ill and wants to transfer $ 13,000 to Son, $ 13,000 to daughter, and $ 13,000 to daughter-in-law. Can she also gift to husband $ 13,000?

However, trying to stay within the $ 13,000 per person per year Gift Laws, and trying not to create any taxable gain to the wife on the transfer.

Then of course the taxpayer wants to make it effective for 2010 - partnership and all individual returns are on extension. Sandy

There should be a partnership agreement which may specify certain requirements, such as approval by the other partners, or first refusal clauses, buy-sell agreement, etc. Is this a family partnership? Is she a limited partner? Active?

What is she trying to accomplish? Since she wants to backdate it to 2010, sounds like perhaps a shifting of income and/or losses to persons who had no interest in partnership at that time? I am pretty sure the "gift" had to be made by 12/31, regardless of what tax returns may be on extension. And it would not have been effective for the entire year, but on the date the gift was made. If she makes the gift this year, it will be effective as of the date of the gift, resulting in a short year for the new partners. It should work the same as a sale.

[S T]

Gifting

This is a Husband and Wife Partnership 80/20 Wife is no longer active in partnership due to debilitating illness, which will be terminal. There is a partnership agreement, which allows transfer.

Wife wants to transfer her partnership interest to 3 children as Gifts

There would be no gift tax return due if wife gifts $ 13,000 to each child, correct? (that would be $ 39,000)

Then if I understand correctly, the wife's remaining partnership interest could be transferred to husband, and he could then gift $ 13,000 per child ($ 39,000)

There would be no taxable consequence on the Wife's 20% partnership interest?

All to take place in 2011, as Burke pointed out. effective on date of the transaction.

Does this sound correct?

Sandy

[WhiteOleander]

I have not done a lot of gift tax returns. But couldn't she just give each child 26000 and choose spouse gift splitting on the gift tax returns? Or, do I have that wrong?

[Lion]

Inherit?

Why doesn't she want her children to inherit her interest?

[ChEAr$]

Why doesn't she want her children to inherit her interest?

Hmmm. maybe because her children are not her husband's children?

[Gary2]

Why doesn't she want her children to inherit her interest?

I don't see anything suggesting that she doesn't. This could simply be to save on estate tax, or to ensure that the business doesn't get tied up in probate.

[Lion]

True

True. Although, it reminds me of the people who transfer their homes to their children via gift. Then, when the child goes to sell, yells and screams about his low basis/high profit/high taxes or goes to rent and thought he could write off the FMV...

[S T]

His children are her children-her children are his children.
It is more for an estate-probate issue
Son is going to quit his job and work in the Partnership full time to take over his Mother's place, since she is not capable of working in the business any longer.
Also, a Social Security Disability Benefits Issue, since she has been an active partner in the business.

Sandy

[Burke]

There would be no gift tax return due if wife gifts $ 13,000 to each child, correct? (that would be $ 39,000)

Correct.

Then if I understand correctly, the wife's remaining partnership interest could be transferred to husband, and he could then gift $ 13,000 per child ($ 39,000)

I think that would work.

There would be no taxable consequence on the Wife's 20% partnership interest?

None on the transfer transaction. Just when the return is filed. She and the children would have K-1's pro-rated, so to speak, for the time period of ownership.

[S T]

Thanks Burke,
For addressing some of my preliminary outlines.

I understand that the K-1 for 2011 would be pro-rated from date of transfer, which hopefully is the only taxable consequence to the spouse wanting to transfer her percentage. No taxable consequence on the Actual Transfer Transaction.

I can now pass this info on to the client, have them re-check with their Attorney and move forward for 2011.

One of the remaining questions - which was lost in the "thread" is whether or not the form 8308 would need to be issued???

Any thoughts

Sandy

[veritas]

It does not appear

form 8308 is required for a gift of a partnership interest. It is not a IRC 751(a) transaction.

[S T]

Thanks Veritas,
Just wondered as part of the assets are Inventory? No Receivables.

Sandy