Accounting for Family Limited Partnerships

In our blog post from Tuesday, we discussed creating a Family Limited Partnership, and today, we’re discussed the accounting aspect of a FLP. In order to keep the IRS from breaking up and disallowing the Family Limited Partnership (FLP), there must be a valid non-tax purpose for the FLP.  One example would be consolidating family wealth management when the parents are in poor health.  It is very important that the operating agreement is followed closely.  Typically, appreciated securities are used to fund the FLP.  Therefore the FLP will most likely receive monthly brokerage statements.  These brokerage statements may be used to track the monthly activity to provide accurate financial statements.

Other accounting practices include:

  • Tracking cost basis
  • Tracking fair market value
  • Reconciling income and cash
  • Calculating built-in-gains for Section 704(c) gain purposes

Stay tuned to our upcoming post on The Taxation of Family Limited Partnerships.  You can also contact your Anders advisor to determine if a FLP is right for you.