Proposed IRS Regulations Will Affect the Valuation of Interests in Corporations and Partnerships for Estate, Gift, and Generation-Skipping Transfers

In an effort to eliminate a long standing technique utilized by business owners to minimize the impact of federal estate taxes on their families, the Obama Administration has proposed eliminating certain valuation discounts. The Administration proposed elimination of family business transfer discounts. The long awaited proposed regulations under Internal Revenue Code Section 2704 were released August 4, 2016. If the proposed regulations are adopted in their current form, they will have the effect of eliminating virtually all minority or lack of control valuation discounts for transfer tax purposes in the context of family controlled entities. This would result in a reduction of the effectiveness of traditional estate freeze techniques utilized under current law.

Hearings are to be held in early December. You may submit your comments on this attempt to burden family business owners until November 2, 2016 to federalregister.gov. You may also contact your congressmen to voice your concerns. It is uncertain as to what the final regulations will be, but for any business owner looking at the transfer of assets using traditional discounting, it may be prudent to conclude such transfers before year end. Since more than one step is typically involved, your planning should begin very soon to complete any transfers this year.