Paul Caron, a law professor at the University of Cincinnati who edits the TaxProf Blog, has a great piece out this week. Its not real estate related, but concerns passing wealth onto heirs. And that often includes commercial real estate.
Specifically, Caron notes that the U.S. Tax Court has essentially blessed a technique for parents to transfer a closely held business or assets to their children with a mnimum of taxes of complications. The ruling in the case, Wandry v Commissioner, says Caron, is stirring up excitement among experts.
In his blog, he quotes David Kautter, a director of American University's Kogod Tax Center, as saying the ruling is a "landmark decision, becuase it allows tax-free ownership transfers from one generation with certaintyand in an orderly manner.
Currently, our system imposes a gift tax up to 35 percent when taxpayers give assets away, with exceptions. In the Wandry case, Dean and Joanne Wandry, a Colorado couple, each gave units in a family owned limited liability company worth $1.099 million to their heirs in 2004. To avoid paying tas, they specified the gifts should equal the dollar value of their exemtions. At the time, the lifetime exemption was $1 million and the annual exclusion $11,000.
There was a gift. And their was a professional appraisal. The Internal Revenue Service challenged the appraisal after the gift. In the Wandry case, the value rose approximately 20 percent above the exemption after the gift.
The IRS lost its case because the judge held the couple intended to make a gift equal to their exemptions, so any excess was never actually given by then. And no tax was due.
I make no claims, real or implied, as I am neither a tax adviser nor an attorney. But as a commercial real estate practitioner, I find this to be a fascinating and insightful article, especially for those business owners and wealthy families with family limited partnersships, who want to pass wealth or that closely held family business to their heirs.
Read it and pass it on.
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