Be careful when gifting LLC interests

Iowa Commercial Litigation, Dickinson Law Firm, Des Moines Iowa

Posted on 04/01/2010 at 01:42 PM by The Newsroom

Be careful if you intend to gift an interest in an LLC, as provisions common to operating agreements may prevent the gift from the annual gift tax exclusion.  If an operating agreement prohibits transfers of an interest without the consent of the manager or the other members and provides for distributions at the discretion of the manager, then the gift of the interest probably does not qualify for the gift tax exclusion. The reason for this is explained in two recent cases, Price v. Commissioner, T.C. Memo. 2010-2 (January 4, 2010) and Hackl v. Commissioner, 118 T.C. 279 (2002) affirmed, 335 F. 3rd 664 (7th Cir. 2003).  Future interests in property do not qualify for the gift tax exclusion.  IRS Regulations provide that in order to be a present interest there must be an unrestricted right to the immediate use, possession, or enjoyment of property or the income from property. (See Gift Tax Regulations 25.2503-3(b)). 

The material in this blog is not intended, nor should it be construed or relied upon, as legal advice. Please consult with an attorney if specific legal information is needed.

Categories: Commercial Litigation


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