Friday, April 28, 2006
Susan Kalinka (Harriet S. Daggett-Frances Leggio Landry Professor, Louisiana State University, Baton Rouge -Paul M. Hebert Law Center) has recently released her article on SSRN entitled Strangi II (or IV?): Fifth Circuit Draws a Line for FLPs under Code Sec. 2036(a).
Here is the abstract of her article:
Estate of Strangi v. Commissioner has made its way back and forth between the Tax Court and the United States Court of Appeals for the Fifth Circuit for the last five years, generating four different opinions. When the Tax Court first decided the Strangi case (Strangi I), it held that the IRS was barred from arguing that the value of property transferred to a family limited partnership (FLP) was included in the decedent's gross estate under Code Sec. 2036(a) because the IRS had waited too long before trial to amend its answer attacking the estate's valuation under Code Sec. 2036(a). The Fifth Circuit remanded the case to the Tax Court for a reconsideration of the Code Sec. 2036(a) issue.
On remand (Strangi II), the Tax Court held that Code Sec. 2036(a) applied to include the value of the property transferred to the FLP in the decedent's gross estate. The Fifth Circuit affirmed Strangi II in July. Estate planners have been waiting eagerly for the Fifth Circuit's opinion in Strangi II for two reasons.
First, the Tax Court held that not only was the property in question included in the decedent's estate under Code Sec. 2036(a)(1), but that Code Sec. 2036(a)(2) also applied. The Tax Court's opinion on the Code Sec. 2036(a)(2) issue could threaten the use of an FLP in an estate plan more than its opinion on the Code Sec. 2036(a)(1) issue.
Second, the Fifth Circuit also has issued an opinion in Kimbell v. United States, holding that property transferred to an FLP was not included in a decedent's gross estate under Code Sec. 2036(a). Practitioners had hoped that the Fifth Circuit would follow its Kimbell opinion to hold, in Strangi II, that property transferred by a decedent to an FLP was not included in the decedent's gross estate under Code Sec. 2036(a). These hopes were dashed, however. The Fifth Circuit distinguished the facts in Kimbell from the facts in Strangi II.
Strangi II offers some guidance to estate planners in the Fifth Circuit concerning the types of arrangements involving the use of an FLP in an estate plan that may pass muster under Code Sec. 2036(a) and the types of arrangements that will not achieve estate planning goals. This column discusses the Fifth Circuit's opinion in Strangi II and the guidelines that it seems to provide.