In a recent California case, the Tax Court ruled that limitations on liquidation of a family limited partnership (FLP) are not applicable restrictions under §2704(b) and therefore must be taken into account when valuing the FLP interests.

The limitations required that the FLP be dissolved upon the earlier of

1. January 1, 2034;
2. The retirement, withdrawal, death, or insanity of a general partner;
3. An election to dissolve the partnership in writing by the general and limited partners;
4. The failure to elect a successor general partner as required in the agreement.

The decedent in this case died in February 1995. His estate reported a 39% Class A limited partnership interest in the FLP. The IRS contended the restrictions on liquidation are applicable restrictions under §2704 and therefore must be disregarded when valuing the partnership interests.

But the Tax Court disagreed, citing its decision in Kerr v. Commissioner (113 T.C. 449 (1999)), in which it held that similar provisions in a partnership agreement were not more restrictive than the requirements of the applicable limited partnership law of Texas. The Tax Court concluded that the facts in that case were indistinguishable from those of the present case.

The IRS did not dispute the similarity between Kerr and this case.