To flip or not to flip?: using a family limited partnership as a harvesting strategy.

Lirely, Roger ; Lockwood, Frank

ABSTRACT

The purpose of this paper is to focus on the Family Limited Partnership as a potential harvesting strategy. The use of a family limited partnership (FLiP) in succession planning has proliferated in recent years. The popularity of FLiPs can be attributed to the unique benefits they offer to manage and transfer family assets, while minimizing gift and estate tax liabilities through careful planning of intrafamily transfers. However, a recent court decision may be of concern to those who use a FLiP to reduce taxes and fail to establish sufficient non-tax business reasons for transferring assets to a FLiP.

INTRODUCTION

It has often been said that it is easier to start a new venture than to close or leave a successful business. One of the most misunderstood aspects of the entrepreneurial adventure is developing and implementing a strategy for harvesting the results generated from successful new ventures. A major reason for this phenomenon is the lack of planning a harvesting strategy at the time we begin a new venture. For example, at the Eleventh Annual Babson College Entrepreneurship Research Conference, Steven Holmberg presented findings from a survey of computer software companies regarding formal planning for harvesting the value created in these businesses. Of the 100 companies responding, only five percent had a formal harvesting plan prepared contemporaneously with the start-up business plan. Fifteen percent had a written strategy for closing or harvesting the value created in their ventures. That leaves 80 percent with no formal harvesting plan for closing their companies (Holmberg, 1991).

Unfortunately, many entrepreneurs begin to think about winding up a business when it is too late: events regarding the business have taken on a life of their own; there is too much debt and not enough cash flow; a competitor or new product has eroded your ability to compete; the owner dies or becomes ill and cannot operate the business any longer; and so forth. Why is this? One response might be that it makes no sense to develop a strategy for selling or closing a business until you have a business to sell or close. And why divert the energy it takes to develop a harvesting strategy away from creating a successful venture when most entrepreneurs know the primary focus must be the development of a market for a product or service and then generate continuing sales from the customer base that was created? Another answer is that we do not want to get involved with accountants and lawyers dealing with complicated valuation and tax issues.

Those interested in becoming successful entrepreneurs have met or read about the successes of some of those who created new ventures--those who started companies and sold or closed them, ending up with millions of dollars--capturing the American dream. What we do not read about or meet are the many more creators of new ventures that have had to sell out or lost their businesses. What separates the two? One answer is the former set of entrepreneurs had a harvesting strategy and the latter did not. Creating a harvesting strategy is a complicated and often a time consuming process. Begin the process in sufficient time to create a plan that, when implemented, will allow one to harvest the rewards of one's labors.

Most persons reading this article are acquainted with the metaphor of the "window of opportunity." If, for example, one misses the "window of opportunity" to sell a company, the opportunity to sell the company again, at the same value, might never happen again. One needs to be prepared to take advantage of the "window of opportunity" in order to enjoy the benefits of harvesting the value from a successful business. In today's world, it has become increasingly more difficult to "be ready" to take advantage of that "window of opportunity." One reason is the expensive and complicated requirements of the Sarbanes-Oxley Act with regard to attaining certain accounting standards before a sale can be consummated. If your company is not actively meeting the requirements of the Sarbanes-Oxley Act, you might not be in a position to sell your company and thus you will miss that "window of opportunity." Again, the objective with regard to succession planning is to put a plan in place and implement it.

The message to those who desire to attain their dream of creating a new venture is to include in that dream the harvesting of the value created from the successful business. Do not miss the "window of opportunity" by waiting until it is too late to sell or close or leave your business to others. Plan ahead. A good harvesting strategy can take three to five years or longer to implement. One must decide how one will harvest the value from a successful business. As an owner, it is important to consider the impact of your succession planning on yourself, your family, employees, the money you will receive, and taxes. There are several alternatives ways of harvesting a business, including but not limited to management buy outs, mergers or acquisitions, going public, liquidation, or licensing. Find a competent attorney and tax professional. But above all, create a plan.

FLIP FUNDAMENTALS

The purpose of this paper is to focus on the Family Limited Partnership as a potential harvesting strategy. The use of a family limited partnership (FLiP) in succession planning has proliferated in recent years. The popularity of FLiPs can be attributed to the unique benefits they offer to manage and transfer family assets, while minimizing gift and estate tax liabilities through careful planning of intrafamily transfers. However, a recent court decision may be of concern to those who use a FLiP to reduce taxes and fail to establish sufficient non-tax business reasons for transferring assets to a FLiP.

The most common scenario for use of a FLiP is when parents who have accumulated wealth who want to pass on their estate to their children, yet keep control of the earning assets. This is generally accomplished by having the parents transfer the assets to a limited partnership in exchange for a 99-percent limited partnership interest. To insulate the parents from the claims of the partnership's creditors, management of the partnership is generally vested in a corporation acting as the general partner of the limited partnership. Ownership of the corporation is often vested in both the parents and children by contributions of initial capital in proportion to their desired ownership interest. In the event children do not have sufficient capital to purchase stock in the corporation, stock can be issued in exchange for their unsecured notes to be paid from future corporate profits. Common provisions of the corporate bylaws and/or partnership agreement provide that family members or the FLiP be given first right of refusal on the sale of shares in the corporate general partner or interests in the FLiP. Typically, ownership of the FLiP is given to the children gradually over the remaining lives of the parents or passes to the children through the parents' estates upon their deaths.

August and Rappoport (2000) identify eight benefits derived from using a FLiP:

1. Family Succession Planning. Many families face real problems when going through the probate of the parent's estate. Unplanned succession can lead to fighting and hurt feelings. Thus one of the major benefits for using a FLiP as an estate-planning tool is the avoidance of family problems at the time of death. All parties to the estate are aware of how the succession will take place.

2. Cash Flow. If there is an ongoing business and/or earning assets, use of the FLiP may allow the company to continue to operate, and the assets to continue to earn. Neither would have to be sold or dissolved to make estate tax payments, thereby providing the heirs a continuing cash flow. In addition, the FLiP balances the return on all of the assets placed into the FLiP. Each heir would receive their pro-rata share of all the assets in the FLiP, thus avoiding family problems by giving one heir an asset that performed differently than assets given to other heirs.

3. Providing for Children Not in the Business. Children may not have an interest in or an aptitude or expertise for running the company and managing the assets. The Board of the corporate general partner, most likely the parents and children representing their proportionate interests, can hire a professionals to run the business and manage the assets. As with any corporation, the manager can be paid a salaried employee or can share in the ownership of the corporation either through purchase or incentive-based compensation. The family can plan shared ownership to ensure that it always maintains a controlling interest in the corporation. Since the family assets are owned by the limited partnership and not the corporate general partnership, shared ownership with a manager can be accomplished without diminuation of family assets.

4. Simplicity of Transfer and Administration. If the parents' holdings include real estate, transfers to various heirs require that deeds be prepared and that costs associated with real estate transfers be paid. FLiP interests are personal property, therefore deeds are not required, and their associated costs are avoided.

5. Improving Return. Using a FLiP improves returns on family assets in at least two ways. First, professional managers have the expertise to maximize returns from company operations and invested family assets. Second, the family benefits from higher returns and lower costs associated with being able to leverage an undivided interest as opposed to each smaller individual interest attempting to negotiate returns and costs with less bargaining power.

6. Better Family Relations. By establishing a governance succession beforehand, parents avoid the potential problem of disagreement amongst their children during the probate of the estate. All of the children will have an interest in keeping the estate assets operating profitably in order to receive future payments.

7. Asset Protection. An important benefit of using a FLiP is the protection of the assets inside the partnership from creditors of any of the partners. Under Section 703 of the Revised Uniform Limited Partnership Act, the creditors of a partner cannot obtain ownership of any of the assets of the partnership, but only receive distributions made to the debtor-partner by the partnership. As a result, the family assets are insulated from claims of creditors of the children.

8. No Ancillary Probate. Generally each state in which a decedent owns real estate will require probate to transfer the real estate to its heirs. If parental assets include real estate owned in several states, the cost of multiple ancillary probate proceedings can be prohibitive. Real estate placed in a FLiP is protected from ancillary probate proceedings since what is transferred at death is an interest in the partnership not real estate.

TAX BENEFITS OF USING A FLiP

The tax benefits of a FLiP arise because it is the limited partnership interest that is included in the parent's estate not the underlying property that was transferred to the FLiP. The limited partner interest is normally discounted for lack of marketability and lack of control. The lack of marketability discount is applicable because of the aforementioned right of first refusal provision and because their typically is not a ready market for what is essentially a minority interest in a family business. The lack of control discount is applied because the limited partner has no or only an indirect voice in the management of the FLiP, since management is vested solely in the corporate general partner. Together, discounts range from 30 to 40 percent of the value of the underlying property. If the discount is applied to FLiP interests that are transferred using the annual gift-sharing exclusion, the tax savings can be substantial over a relatively short period of time.

BAD FACTS MAKE BAD LAW

In 1975, Albert Strangi, a self-made millionaire, sold his company, Mangum Manufacturing, in exchange for stock of the Allen Group (Estate of Albert Strangi, 115 T.C. 475, 2000, hereinafter Strangi I). He subsequently moved, with his second wife, the former Irene Delores Seymour (Mrs. Strangi), to Fort Walton Beach, Florida. Strangi married his first wife, Genevieve Crowley Strangi (Genevieve Strangi), in the late 1930s and had four children with her (the Strangi children). Mrs. Strangi had two children from a previous marriage (the Seymour children).

In 1987, Strangi and Mrs. Strangi executed wills that named the Strangi children and the Seymour children as residual beneficiaries in the event that either Strangi or Mrs. Strangi predeceased the other. At the same time, Mrs. Strangi executed the Irene Delores Strangi Irrevocable Trust (the Trust) and designated Strangi as the executor of her will and trustee of the Trust. Mrs. Strangi's will provided that her personal effects were to be left to Strangi and that life insurance proceeds, employee benefits and any residuary of her estate should be distributed to the Trust. A codicil provided that property she owned in Dallas, Texas, should be distributed to the Jeanne Strangi Brown Trust. The Trust provided for lifetime distributions to Mrs. Strangi. Upon her death, the Trust was to distribute her property in Florida to the Seymour children, $50,000 to her sister and the residuary to Strangi if he survived her.

Following several serious medical problems suffered by Mrs. Strangi, she and Strangi moved to Waco, Texas, where they hired a housekeeper, Sylvia Stone (Stone), who also provided assistance to Mrs. Strangi, Strangi executed a power of attorney, naming son-in-law, Michael J. Gulig (Mr. Gulig), as his attorney in fact. In July, 1990, Strangi executed a new will that named the Strangi children as the sole residual beneficiaries of his estate should Mrs. Strangi predecease him, thus excluding the Seymour children in any residual interest of his estate. Mrs. Strangi died in December, 1990. Her uncontested will was admitted to probate in Texas.

Subsequent to a series of health problems suffered by Strangi in 1993, Mr. Gulig took over Strangi's affairs pursuant to the 1988 power of attorney. In August 1994, Mr. Gulig attended a seminar conducted by Fortress Financial Group, Inc., (Fortress) that outlined the use of family limited partnerships (FLiPs) as a means of (1) reducing income taxes, (2) reducing the reported value of estate property, (3) preserving assets, and (4) facilitating charitable giving. Fortress recommended the contribution of family assets to a FLiP and having a corporate generate partner manage the FLiP. Using copyrighted forms supplied by Fortress, Mr. Gulig created Stranco, a Texas corporation, and SFLP, a Texas limited partnership.

To effect the creation of SFLP, Mr. Gulig drafted transfer documents that assigned almost all of Strangi's holdings, valued at nearly $10 million, to SFLP in exchange for a 99-percent limited interest in SFLP. Approximately 75 percent of the holdings were cash and securities with the remainder constituting specified real estate, accrued interest and dividends, insurance policies, annuities, receivables, partnership interests and Strangi's personal residence. Strangi continued to reside in the residence until his death. The SFLP partnership agreement specified that Stranco had the sole authority to conduct the business affairs of SFLP and allowed SFLP to lend money to various entities, including partners.

Strangi purchased 47 percent of Stranco for $49,350. The Strangi children participated in SFLP through Stranco by executing unsecured notes in the amount of $55,650 to purchase the remaining 53 percent of Stranco. Strangi and the Strangi children made up the initial board of directors of Stranco. Stranco never held formal meetings but by unanimous consent agreements, Rosalie Strangi Gulig (Mrs. Gulig) was selected as president and Mr. Gulig was employed to manage the day-to-day affairs of Stranco. All other corporate actions were by unanimous consent agreements. The shareholders' agreement provided that Strangi and the Strangi children would annually reelect themselves or a nominee as the board of directors and in the event of a vacancy due to death, disability and other valid reasons, the number of directors would be reduced by one (Estate of Albert Strangi v. Commissioner, T.C. Memo 2003-145, hereinafter Strangi II). On August 18, 1994, the Strangi children donated 100 Stranco shares to McLennan Community College Foundation "in honor of their father." (Strangi I). Strangi, who required 24-hour home health care beginning in September 1993, died October 14, 1994.

SFLP engaged in the following activities from its inception and after Strangi's death:

1993-94 Paid for back surgery for Stone, who injured her back
 sometime during the period of time she was assisting
 Strangi during his convalescence

1994 Paid $40,000 for funeral and estate administration
 expenses and related debts of Strangi, including over
 $19,000 for home health-care services provided to
 Strangi by Olsten Healthcare

1995-96 Paid more than $65,000 for estate expenses and a
 specific bequest to Strangi's sister

July 1995 Distributed $3,187,800 to Strangi's estate for State
 and Federal estate and inheritance taxes

1995 and 1996 Distributed $563,000 to each of the Strangi children,
 characterized as distributions to Strangi's estate

May 1996 SFLP divided its primary Merrill Lynch account into
 four separate accounts, one for each of the Strangi
 children, giving them control over a proportionate
 share of partnership assets

May 1996 Extended lines of credit to three of the Strangi
 children, John Strangi, Albert Strangi and Mrs. Gulig,
 in the amounts of $250,000, $400,000 and $100,000
 respectively

January 1997 Increased John Strangi's and Albert Strangi's lines
 of credit to $350,000 and $600,000, respectively

November 1997 Advanced $2,32 million to Strangi's estate to post
 bonds with the Internal Revenue Service and State
 of Texas in connection with a review of Strangi's
 estate tax return

1998 Made distributions of $102,500 to each of the Strangi
 children

Distributions on behalf of Strangi or his estate were accompanied by matching distributions to Stranco or adjusting entries on Stranco's books. Certain amounts paid by SFLP were initially recorded as advances to or accounts receivables from partners. In addition, SFLP accrued rent from Strangi for use of the personal residence, included this amount in its 1994 tax return and received the accrued rent in 1997.

On January 16, 1996, Strangi's estate tax return was filed by Mr. Gulig. Strangi's gross estate was valued at $6.8 million, including a $6.6 million valuation of SFLP. The appraisal of the interest in SFLP included a 33 percent discount for lack of marketability and lack of control. The property held by SFLP had increased to over $11 million by the date of Strangi's death. In January 1998, the IRS issued a notice of deficiency for over $2.5 million or, alternatively, over $1.6 million of federal gift taxes due upon the formation of SFLP.

Over the next several years, the IRS and the Strangi estate fought through the federal courts over the amount of estate or gift tax due. The Strangi estate successfully defeated arguments by the IRS that (1) SFLP had no economic substance or business purpose and should be disregarded, (2) gift tax was due from Strangi when SFLP was formed, and (3) partnership restrictions should be disregarded in valuing the property. Finally, in May 2003 (Strangi II), the IRS was able to convince the tax court that because Strangi retained an interest in the property transferred to SFLP, the property should be included in his estate at its fair market value. The Fifth Circuit Court of Appeals affirmed the decision of the tax court in July 2005 (

So where did Strangi go wrong? The argument advanced by the IRS in Strangi II, is contained in Internal Revenue Code section 2036. Section 2036 provides that a decedent's estate should include the fair market value of property over which the deceased retained possession, enjoyment or the right to income from the property or the right to designate who will receive these benefits. However, if the decedent disposed of the property in a bona fide sale, then it is not included in the estate. The court ruled that the payment of Strangi's expenses by SFLP and his continued use of the personal residence were proof enough that Strangi retained possession of or enjoyed the property transferred to SFLP. The question, then, was whether or not the transfer by Strangi to SFLP was a bona fide sale.

A sale is bona fide if the transaction has a substantial business or other nontax purpose (Kimbell v. U.S. 371 F.3rd 257). The Strangi estate advanced five nontax reasons for the creation of SFLP:

1. Deterring potential tort litigation by Stone. The court rejected this as a convincing non-tax reason because evidence showed that Strangi and Stone were "very close", there was no evidence that Strangi caused the injury to Stone, SFLP paid the expenses for Stone and Stone never threatened any action.

2. Deterring a potential will contest by the Seymour sisters. The court noted that although one of the Seymour sisters consulted an attorney, the will was never contested.

3. Persuading a corporation, named in Strangi's will as executor of his estate, to decline to serve. The court refused to reject as "clearly

erroneous" the tax court's finding that there was no valid business purpose related to exector's fees and other related costs.

4. Creating a joint investment vehicle for the partners. The court rejected this argument on the basis of the minimal investments by partners other than Strangi.

5. Permitting centralized, active management of working interests owned by Strangi. In rejecting this argument, the court noted that there was very little management at all, that there was no operating business and that the assets transferred to SFLP were largely investment assets that required little if any management.

In light of the decision in Strangi II, can a FLiP withstand a challenge by the IRS? Consider the following hypothetical case.

GOOD FACTS MAKE GOOD LAW?

George, born in 1940, started a small manufacturing company in 1965. During the following 40 years the business prospered, generating $50 million in annual sales with a physical plant valued at $15 million. In 1985 George hired Fred, a young MBA graduate, to help him manage the company. Initially Fred worked in the various operating departments of the company, finally successfully heading the sales department in 1993.

George and his wife had three children who had grown up and moved away from home. None of them were interested in running the family business. So, in 1994 George met with his tax attorney and accountant in order to establish the best way to pass on the wealth he had created during his life to his family and, at the same time, determine the best way to continue the business for the employees who had helped build it. The discussion was far ranging, going from traditional trusts to Employee Stock Ownership Plans to FLiPs. Based on the circumstances it was agreed the best route for George and his wife was to create a Family Limited Partnership.

During the next year George began the process of creating a FLiP. He wanted to make sure the FLiP would allow him to control the company until he retired, provided George and his wife a retirement income, and meet the standards established by the Internal Revenue Service. This process turned out to be somewhat complicated and he was glad he had expert professional help.

The first step was to establish the Family Limited Partnership. George wanted to make sure the FLiP would operate smoothly after his death, so he put several restrictions in the partnership agreement such as:

Arbitration to Settle Disputes. When the children signed the partnership agreement they consented to have any disputes between them resolved by arbitration. This section of the partnership agreement included a clause that required payment of all costs by a party who unsuccessfully brought an arbitration action against the other partners.

Right of First Refusal and Buy-Sell Agreement. The partnership agreement included a right of first refusal giving the existing partners the opportunity to purchase shares of ownership being sold by any partner. The partnership agreement also established a buy-out process wherein the other partners or the partnership itself may buy the shares offered for sale by one partner at a certain discount to fair market value.

Asset Protection Clause. George's wife was not sure the marriages of all of their children would last and she wanted to make sure her children kept their share of the estate in the event of divorce even though most courts were reluctant to award a Family Limited Partnership interest to the other spouse. To make sure the ownership of the FLiP stayed "in the family", in the event a court awarded one of the children's partnership interest to a non-family spouse, that event would trigger a buy-out provision requiring the partnership to acquire the partnership interest.

George wanted to make sure the company remained in operation so he placed the shares that he and his wife owned (100%) in the company into a Family Limited Partnership. In addition, George placed the deed for the real estate used by company in its operations (land and buildings in several states). George was the general partner owning 10% and George and his wife, as limited partners, owned the other 90%. In order to dampen potential liabilities as the general partner, George created a Sub-S corporation to be the general partner. The long-term plan included the following provisions:

Appraisal of the value of the assets. The company was appraised at $5 million, after taking into account the age of the building and equipment. Because the shares of the company were now the assets of a Family Limited Partnership the value of the partnership's assets could be "discounted due to lack of marketability." It was concluded the value of the company's shares in the FLiP could be discounted by 40% and were therefore appraised at $3,000,000 at the time the assets were transferred into the FLiP on June 1, 1994.

Management succession. During the first five years after the partnership was established, George agreed to sell to Fred half of his ownership interest in the Sub-S corporation that was the general partner of the FLiP. When George retired or died, Fred would be promoted to manager of the company and, pursuant to a pre-existing agreement, George (if alive) and his wife would retain half of the ownership of the general partner and receive retirement payments until both George and his wife passed away. At that point in time, the other half of the general partner would be sold to the company.

Avoidance of Lack of Valid Business Purpose. By putting into place a management succession, which provided for his employees, George knew the IRS usually considered a FLiP to be created solely for the purpose of reducing or avoiding estate taxes. By making sure the company would continue to operate the IRS could not make the argument the FLiP was set up as a sham transaction.

Distribution of Limited Partnership Interest. Beginning in 1995, George and his wife combined their $11,000 annual gift exclusion and give away their limited partnership ownership interests to the children. During the next 10 years the children received $660,000 in tax-free distributions from their parents.

In 2005 George and his wife were killed in a traffic accident and the remainder of George's succession plan went into effect. Fred became the general manager of the company and had the value of the company appraised in order for the company to purchase the other half of the general partner. The value of the company was appraised at $15 million, a substantial increase from the $5 million value in 1994.

The estate went into probate with the exclusion of the Family Limited Partnership, which owned the company. If the FLiP had not been put into place, the estate would have had to pay estate tax on the $15 million appraised value of the company in 2005. Assuming the estate tax rate to be 50%, the tax would have been $7.5 million. In the event the children did not have the ability to pay such an amount, they would have no choice but to sell the company. Since the FLiP was in place, the only estate tax that was applicable to the company was paying tax on the 5% general partner interest, using the 1994 value of $15,000 (half of $30,000), and the remaining limited partner interest, valued at $2,040,00(0 again using the 1994 valuation). However, there would be no tax due to the $1,500,000 lifetime estate tax exclusion.

1. Family Succession Planning. Many families face real problems when going through the probate of the parent's estate. Unplanned succession can lead to fighting and hurt feelings. Thus one of the major benefits for using a FLiP as an estate-planning tool is the avoidance of family problems at the time of death. All parties to the estate are aware of how the succession will take place.

2. Cash Flow. Use of the FLiP may allow the company to continue to operate and not have to be sold or dissolved to make estate tax payments, thereby providing the heirs a continuing cash flow. George could have included his other assets in the FLiP. Had he done so, the FLiP would have balanced the return on all of the assets placed into the FLiP. Each heir would receive their pro-rata share of all the assets in the FLiP, thus avoiding family problems by giving one heir an asset that performed differently than assets given to other heirs.

3. Providing for Children Not in the Business. In the case of George and his wife, none of the children had any interest in running the company. The succession plan therefore included a professional manager, Fred, who took over management of the company while the FLiP continued to pay George's children their share of the company's earnings as represented by their ownership of the limited partner interests in the company.

4. Simplicity of Transfer and Administration. When George created the Family Limited Partnership he deeded the property on which the company's plant was located into the FLiP. By taking this action, the estate avoided the potential problem of having to deed part of the real property to each of the heirs since transfers of ownership in a FLiP do not require a deed.

5. Improving Return. Many FLiPs retain investment advisors to manage the assets that have been placed in the partnership. In the case of George, he hired Fred, a professional manager, and groomed him take over the operations of the company. The benefit of improving the return on the assets of the estate is rather obvious in this instance.

6. Better Family Relations. By establishing a governance succession beforehand, George and his wife avoided the potential problem of disagreement amongst their children during the probate of the estate. All of the children had the same interest in keeping the company operating in order to receive future payments.

7. Asset Protection. An important benefit of using a FLiP is the protection of the assets inside the partnership from creditors of any of the partners. Under Section 703 of the Revised Uniform Limited Partnership Act, the creditors of a partner cannot obtain ownership of any of the assets of the partnership, but only receive distributions made to the debtor-partner by the partnership.

8. No Ancillary Probate. The company operated in several states and George had placed the deeds for the real estate into the FLiP when it was formed. The benefit to the estate is the manner in which most states treat real property versus personal property. Partnerships, including FLiPs, are treated as personal property and all interests in real property accorded the same treatment. Thus, George's estate avoided probate in those state where the company owned real estate.

TO FLiP OR NOT TO FLiP, THAT IS THE QUESTION

This article has covered some of the basics with regard to using a FLiP as part of a business owner's succession planning. Hopefully entrepreneurs will include a harvesting strategy as part of their original business plan. The benefits of using a FLiP can provide the entrepreneur and his or her family with a potentially best alternative to other tactics available in succession planning. Implementing a FLiP requires the entrepreneur to plan in advance and to utilize legal and accounting professionals. And do not forget, the FLiP must include real business purposes, not just be an artifice for avoiding taxes.

REFERENCES

August, J. & A. Rappoport (2000). Recent Decisions Frustrate Service's Efforts to Challenge FLPs 27 Estate Planning 19.

Borsback, S. P. & H. B. Eshelman (2005). Business Purpose is Back: Law Takes Unfavorable Turn for Taxpayers Using Family Limited Partnership Technique New Jersey Law Journal, November 14, 2005.

Holmberg, S. R. (1991). Value Creation and Capture: Entrepreneurship Harvest and IPO Strategies in Frontiers of Entrepreneurship Research, Neil C. Churchill, et. al.(Eds.). Babson Park, MA: Babson College; 191-205.

Thompson, M.G. (2005). Where We Were and Where We Are in Family Limited Partnerships, The Legal Intelligence. August 1, 2005.

Roger Lirely, Western Carolina University Frank Lockwood, Western Carolina University