The Tax Court case of Powell v. Commissioner held that the decedent’s estate owned the assets that the decedent had contributed to a limited partnership because the decedent indirectly retained the power to determine if and when there would be a distribution from the partnership or liquidation of the partnership. This opinion extended the application of Section 2036 to partnerships, stated in the Fifth Circuit Court of Appeals case of Strangi v. Commissioner. In Powell, the decedent did not own a general partner interest. However, the Court held that the decedent was considered to be in control over the general partner, because the general partner was the Agent under the decedent’s Durable Power of Attorney, and as Agent owed a fiduciary duty to the decedent in deciding when to make a distribution from the partnership or cause a liquidation of the partnership.
There appears to be confusion over when the Powell case will apply, what practitioners and clients can safely use planning strategies, and what can be done to avoid applying the Powell result for existing family LLC, limited partnership, and other arrangements.
Kenneth J. Crotty, J.D., LL.M. is a partner at the Clearwater, Florida law firm of Gassman, Crotty & Denicolo, P.A., where he practices in the areas of estate, tax, and trust planning, taxation, physician representation, and corporate and business law.
He is Board Certified in Tax Law. Mr. Crotty has co-authored several handbooks that have been published in BNA Tax & Accounting, Estate Planning magazine, and Steve Leimberg’s Estate Planning and Asset Protection Planning Newsletters. He, Alan Gassman, and Christopher Denicolo are the co-authors of the BNA book Estate Tax Planning in 2011 & 2012.
Our firm was formed in 1987 with one lawyer and a shared secretary and receptionist to provide representation to professionals, business owners and retirees in their estate and related tax and personal planning, business and corporate needs.
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