Valuation for Family Limited Partnerships

Sack Associates prepares FLP valuation reports that withstand IRS scrutiny. To create a supportable report, we carefully analyze the FLP agreement and other partnership documents to support the valuation discounts taken.

Reasons to establish FLP’s include facilitating the transfer of family-owned assets without losing control, protecting the assets held by the FLP against creditors/lawsuits, and keeping the assets in the family (this is especially important in cases of divorce).

The valuation of a family limited partnership falls under the guidance of revenue ruling 59-60. This ruling establishes eight factors that the valuation must consider. The factors are as follows:

• The nature and history of the business;
• The economic outlook in general and the industry specific outlook;
• The book value of the stock and the financial condition of the business;
• The earning capacity of the business;
• The dividend paying capacity of the business;
• The goodwill and intangible assets of the business;
• The sales of stock and size of the block to be valued; and
• The market price of stocks of similar businesses that are actively traded in a free and open exchange or over the counter.

Additionally, Chapter 14 of the IRC has specific provisions for the valuation of closely held businesses and partnerships. The partnership agreement must comply with the provisions of this chapter in order to qualify for valuation discounts.