You are an associate in a boutique tax consulting firm that specializes in the real estate industry. You have been assigned to work with a client who needs advice on the tax implications of his business holdings, which include Skyscrapers, a commercial real estate firm organized as a sole proprietorship with a fair market value of $1 billion. He is considering transferring partial ownership of the Skyscrapers to both of his children and selling a 10% interest to an unrelated third party. You have already prepared a memorandum informing management of the estate and gift tax consequences of these potential transactions and including a cost-benefit analysis. Now, you need to prepare a PowerPoint presentation that communicates your tax planning strategy, which you will present to the client and his financial advisors.

Specifically, the following critical elements must be addressed:

I. Introduction

A. Describe the estate and gift tax strategy to the client in layman’s terms. Concentrate on the creative aspects of the strategy that minimize the client’s tax liability over time.

B. Explain how family limited partnerships (FLPs) and intentionally defective grantor trusts (IDGTs) help to accomplish the client’s desired economic results. Consider the jargon and mechanics of the transaction when preparing the presentation.

C. Justify how your strategy will minimize income tax liability on the sale of the partial interest in the business to an unrelated third party and on the taxable income potentially received by the business’s operations over the next 24 months. Consider including comparisons to alternative transaction structures in the justification.

II. Tax Planning Strategy

A. Recommend life insurance, annuities, and charitable giving strategies to the client, taking into account anticipated business needs and cash flow.

B. Summarize, using layman’s terms, how the taxpayer’s overall cash flow and liquidity concerns were taken into account when designing the proposed strategy. Consider current gift tax expenditures.

C. Explain the 30-year projections in layman’s terms, assuming 3% annual appreciation in the value of the assets of the business, using the proposed estate tax strategy. Consider the gift and estate tax liability the client will ultimately pay.

D. Formulate the potential lifetime estate tax savings and tax liabilities over 30 years under the proposed strategy and without the proposed strategy. Consider IRS Code and Regulations.

E. Analyze long-term income tax considerations by comparing the total income tax liability with no tax strategy against the liability applying your proposed estate tax planning strategy.

III. Risk Analysis: Analyze penalties, interest, and ethical considerations that might impact the client using the following scenarios. Keep layman’s terms in mind as you word the results of your analysis supported by appropriate IRS Code and Regulations.

A. The client did not have enough cash on hand to fund gift tax or income tax incurred from the estate planning.

B. The client encouraged his friend to prepare an inaccurate appraisal.