Family Partnership and Proprietorship

A general partner in a partnership has unlimited legal liability but also has managerial control over the partnership. A limited partner has limited liability but does not exercise control over the day-to-day operations. John, your client, owns a machine shop operated as a sole proprietorship. The business is worth $10,000,000. He would like to transfer a portion of ownership to his two adult children, Cindy and Luke, by converting the business into a partnership. How would you structure a partial transfer of ownership in the business to Cindy and Luke to achieve a fair market value of the transfer that is less than Cindy and Luke's proportionate share of the $10,000,000 value? Are there any penalty concerns associated with the valuation discounts that your proposed transfer takes advantage of, especially if the valuation is found to be inaccurate?

Cite appropriate statutory authority, case law, and/or the AICPA Code of Professional Conduct, American College of Trust and Estate Counsel (ACTEC), and/or ABA Model Rules of Professional Conduct to support your initial post