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§ 9.24 CHARITABLE FAMILY LIMITED PARTNERSHIPSmodest limited partnership interest or transfer such an interest to his or her children.An independent appraisal of the value of the partnership interests is done toestablish fair market value for purposes of the income tax charitable contributiondeduction. The charity receives whatever assets are held by the partnershipat the end of the partnership term, assuming that the partnership interest is notsold prior to the expiration of the term.The donor claims an income tax charitable deduction based on the value ofthe gift of the partnership interest to the charity. The value likely has been discountedto take into account: (1) the lack of the charity’s control and managementof partnership operations, and (2) lack of marketability of the limited partnershipinterest in the context of a closely held business.The IRS wrote that the “key point is control.” 566 Here, control remains withthe donor as the general partner. The charity, a limited partner, lacks any voicein the day-to-day management or operations of the partnership. (This is ironic,by the way, in that, when public charities first began functioning as generalpartners in limited partnerships, the IRS tried to insist that the charities not haveany day-to-day involvement in the operations of the partnerships.)If the partnership sells the appreciated property it holds, most of the gainescapes taxation because of the charity’s tax-exempt status. Only the modestlimited or general partnership interests held by the donor and the donor’s familyare subject to capital gain taxation. The donor generally receives a managementfee as compensation for operating and managing the partnership.The charity holds an interest that may produce current income (although theIRS notes that many of these limited partnerships produce little or no income).The charity also holds an interest in an asset (hopefully an appreciating asset)that will be sold or exchanged no later than the expiration of the partnershipterm, usually 40 to 50 years.Often the partnership agreement gives the partnership the right to sell theproperty to the donor or the donor’s family at a price specified in the partnershipagreement. The IRS observes that, while this type of an option “may serveto benefit” the charity, the “option is often viewed by critics of this technique asworking more for the benefit of” the donor or the donor’s family. 567This technique, the IRS notes in an understatement, “raises a number of taxissues.” One is that the “operation of the partnership may cross over into the areaof clear tax abuse.” 568 Other problematic areas are the extent of the charitablededuction (if any), private inurement, private benefit, unrelated business income,and intermediate sanctions. If the charity involved is a private foundation (a badidea), there may be issues of self-dealing and excess business holdings.In one instance, a court upheld the basic validity of this type of partnership,sustaining the claim for federal gift tax charitable contribution deductions(although not in the amounts sought by the donors). 569 The court concluded thatall that had been assigned were the economic rights with respect to the partnership,and thus that the assignment did not cause the assignees to be admitted as566 IRS Exempt Organizations Continuing Professional Education Program Text for Fiscal Year 2001, at 129.567 Id.568 Id.569 McCord v. Commissioner, 120 T.C. 358 (2003). 345