- Wimmer v. Commissioner, T.C. Memo 2012-157 (June 4, 2012) Gifts Of Limited Partnership Interests Qualified As Present Interests for Annual Exclusion
- August 7, 2012
- Law Firm: Proskauer Rose LLP - New York Office
Three cases prior to Wimmer denied annual exclusions for gifts of limited partnership interests. The Wimmer Court found that the gifts qualified because the donees received income distributions.
The partnership was funded with publicly traded and dividend paying stock. In the first three years the partnership made distributions to the limited partners to pay their income tax. After that, the partnership distributed all dividends. Also, limited partners had access to capital account withdrawals.
The Court stated that in order for the gifts to convey a present interest, they must convey a substantial economic benefit by allowing use, possession, or enjoyment of (1) property or (2) of income. The Court found that because the limited partnership agreement contained many restrictions on transfer, the beneficiaries did not have a present right to use the property.
The Court then considered whether the beneficiaries had a right to income. There is a three-part test: (1) if the partnership would generate income, (2) if some portion of the income would flow steadily to the donees, and (3) if that portion of income could be readily ascertained. This test was satisfied. The partnership was expected to generate income because it consisted of publicly traded stock. It was expected that some portion of income would flow steadily because the general partners owed fiduciary duties to the limited partners. One donee was a trust with no other assets, so the partnership was required to make income distributions to provide this trust with funds to pay its taxes. Since the partnership agreement required pro-rata distributions, all other limited partners would also receive income. Last, the income could be readily ascertained based on the stocks' histories.