As a result of the well advertised abuse by large accounting firms and large law firms by their promotion of tax reduction transactions [TRT], a.k.a. tax shelters, the IRS personnel in Examination, Appeals CID and Counsel's office have apparently begun to shift their resources toward stiffer settlements, penalties or litigation where it becomes apparent to the IRS that the taxpayer may be potentially noncompliant with existing tax laws. For this reason, should a client become a target of an Examination, it is important for the advisor or tax attorney to quickly establish to the IRS that the taxpayer is a “compliant taxpayer”.
Family Limited Partnerships after Strangi II. Family Advisors have long recommended the use of family limited partnerships for asset protection, the application of minority discounts for estate tax purposes, and control over assets. The IRS has achieved recent victories with Section 2036. The Court in Strangi II determined that the decedent retained implicit control over the transferred assets, which caused the assets to be included in computation of the estate tax, in part, because the magnitude of the transfer left the decedent without sufficient resources. Advisors should carefully consider what must be done to correct existing FLPs for the Strangi II decision as well as drafting for new FLPs. This issue imperils similar planning with S Corporations in the intra family transfer of wealth . Advisors must step carefully when addressing transfers with S Corporations.