With the reduction of the size of the parent's estate, a Federal Estate Tax savings may also be obtained. The Tax Reform Act of 1984 requires a partnership which receives property with an unrealized gain or loss, to allocate the gain or loss to the contributing partner when the property is sold. Prior law permitted allocation of the loss or gain among all of the partners. Parent gifts interest to child.
Child works in the partnership.
Reasonable allowances must be made, in allocating the profits, for the service rendered by the donor-partner. Capital must be a material income-producing factor in the business. A Trust for minors can be a partner, if the Trust is administered solely for the beneficiaries' best interests. If the controls retained by the parent exceed those commonly found in normal business relationships, the IRS may try to include the children's interest in the parent's estate.