IRS Section 2704
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The announcement of proposed regulations under Internal Revenue Code Section 2704 has many families and their advisors scrambling to mitigate the potential impact the regulation could have on their estate planning efforts. Owners of family businesses have traditionally relied on valuation discounts to curb the estate and gift tax burden associated with transferring wealth and ownership to future generations. That could all change by the end of the year, should the proposed regulations take effect. Watch the replay of this special webinar as our panel of experts offered their insights and advice on what families can do to prepare themselves for Sec. 2704.
September 2016
IRS Attacks Valuation Discounts
Wilmington Trust
Recently proposed IRS changes to reduce or eliminate valuation discounts could dramatically increase the transfer tax cost of shifting property to members of your family in the future. The loss of valuation discounts is of significant concern for high-net-worth individuals for whom federal transfer taxes are an issue. It’s possible that some of the regulations could become effective as early as December of 2016, so it’s important to consult with your tax and legal advisors to evaluate your planning options.
August 2016
Tax Spotlight – Last Call for Valuation Discounts
Ascent Private Capital Management
Proposed regulations covering the valuation of family controlled entities for transfer tax purposes—12 years in the making—were published by the IRS on August 4, 2016. If newly proposed IRS Regulations are finalized in their current form, nearly all valuation discounts on family controlled entities will be eliminated. Given the December 1st public hearing date on the proposed regulations, there is a brief window of opportunity for families to transfer business and investment assets at a reduced gift tax cost. Now is the time to act.
Proposed IRS Regulation Could Eliminate Valuation Discounts
Hawthorn, PNC Family Wealth
The proposed regulations under Section 2704 of the Internal Revenue Code are a game changer for affluent families. These regulations would effectively end valuation discounts for transfers of interests in several family entities. These new rules will apply not only to passive companies that hold a portion of the family’s investment portfolio, but also to operating businesses. A public hearing on the proposed regulations is scheduled for December 1, 2016. Families potentially affected by these proposed regulations should consider meeting with their advisors as soon as possible to review the proposed regulations and take appropriate actions.
Treasury Department Issues Proposed Regulations Impacting the Valuation of Family-Owned Businesses
Koley Jessen P.C., L.L.O.
For years, owners of family-controlled companies have taken advantage of applicable valuation discounts to advance their objectives in transferring wealth and company ownership to future generations in a tax efficient manner. On August 2, the Treasury Department issued proposed regulations under Internal Revenue Code Section 2704 to curb the use of valuation discounts in such circumstances. A public hearing on the proposed regulations has been scheduled for December 1, 2016. If adopted, these regulations will result in increased wealth transfer taxes (i.e., estate and gift taxes) for owners of family-controlled companies.
Federally Proposed Rules to Increase Tax Cost of Family-Entity Transfers
Perkins Coie
The federal government proposed sweeping new tax rules earlier this month that would dramatically affect family businesses, investment partnerships and other entities. These rules, which could become final and binding as early as the end of 2016, would artificially inflate the value of interests in family entities for gift and estate tax purposes. Families should now consider whether to accelerate their plans to transfer family business and investment assets ahead of these rules.
The End of Valuation Discounts in a Family Business Context?
PwC Private Company Services
Current valuation methodology for gift and estate tax purposes often includes discounts for privately owned businesses. Discounts can and have ranged from 15 to 50 percent. Modern estate planning sometimes includes packaging investments into a family-owned investment pool that would be subject to discounting. The Department of Treasury has proposed new regulations that are likely to eliminate almost all valuation discounts in a family business setting. A public hearing is scheduled for December 1, 2016. Family business owners should carefully consider whether to act now while valuation discounts can still be considered for family-related transfers.
Treasury Releases Proposed Regulations to Section 2704
RSM US LLP
The long-awaited and much-speculated about regulations to Section 2704 were issued on August 2, 2016. As issued, the proposed regulations expand the scope and reach of section 2704 to preclude use of various structural techniques to artificially suppress the value of interests in entities transferred by taxpayers or owned by them at death. The IRS is likely to receive a great deal of commentary from the estate planning and valuation communities, respectively. Therefore, the final form of these regulations is difficult to predict at best. In the meantime, taxpayers who are considering wealth transfer have ever more reason to put their plans into motion.
IRS Issues Proposed New Regulations to Restrict or Eliminate Valuation Discounts
Schiff Hardin LLP
Under the IRS’s proposed new regulations, they would permanently and profoundly change estate planning for families that own a controlling interest in a privately held corporation, partnership, or limited liability company. The IRS has requested comments on the proposed regulations by November 2, 2016, and will hold a hearing on December 1, 2016. Even if the regulations are finalized in something close to their current form, portions of the regulations likely will be subject to challenge on the grounds that they exceed the scope of the statute. However, anyone considering a transfer of interests in a family-controlled entity might wish to do so now.
New IRS Proposed Regulations Seek to Curtail Entity Valuation Discounts for Estate, Gift, and GST Tax Purposes
Waller Lansden Dortch & Davis
Recently the IRS released proposed regulations under Chapter 14 of the Internal Revenue Code that would severely limit—if not eliminate—the application of valuation discounts, including lack of marketability and minority discounts, to interests in closely held family entities for gift, estate, and generation-skipping transfer tax purposes. If finalized in their current form, the proposed regulations will have a significant impact on future estate planning for high net worth individuals and, potentially, on estate plans which were recently put into place.