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The Proposed Changes to Valuation Discounts for Family-Owned Businesses: An Update

Posted by Concannon Miller on Tue, Aug 30, 2016

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estate_planning-family_from_website-2.jpgThe IRS recently issued new proposed regulations designed to reduce the ability to take valuation discounts on intra-family transfers of interests in privately-held businesses. These proposed regulations aim to reduce the ability to apply valuation discounts which can affect future estate and gift tax planning.

If the proposed regulations are finalized in their current form, they could profoundly change the landscape of estate and gift planning for family-owned businesses by making it harder to apply minority and marketability discounts based on liquidation restrictions.

It should be noted that these regulations are only in proposed form, and could be substantially changed – even revoked – depending on public comments received through Nov. 2, 2016.

READ MORE: Attention Family Businesses: IRS Seeks to Change Gift Tax Rules on Minority Interests

A public hearing on the proposed regulations has been scheduled for Dec. 1, 2016. If adopted, new regulations generally do not take effect until at minimum of 30 days after finalized. Many commentators believe the IRS will face an uphill battle against taxpayers, tax advisors and lawmakers when it comes to curtailing this estate and gift planning tool.  Additionally, the IRS faces recent case history supporting valuation discounts in appropriate circumstances.

Opponents argue that the IRS may be overstepping its authority in issuing these proposed regulations. Public comment may cause the IRS to water down its proposal before finalizing it. If not, such regulations may wind up in litigation.

With the uncertainty of these proposed regulations and the uncertainty of the potential reduction in estate and gift tax exemption, we continue to recommend to those who own interests in privately-held family businesses that they review their estate and gift planning strategies now or in the upcoming months.

Given that new regulations may be finalized before year end, and the possibility of a reduction in the current estate and gift tax exemption of $5.45 million for single tax payers and $10.9 million for married filing joint taxpayers an opportunity exists now to accelerate the gifting of interests in closely-held entities to family members and/or trusts.

For more information on how the new proposed regulations and the possible reduction in the estate and gift tax exemption may apply to your estate and gift tax planning, contact us here.

Topics: Business tax planning, Estate and Trust Services

Concannon Miller’s unique, holistic and intimate approach to financial health sets us apart from smaller CPA firms with more limited resources as well as mega firms where mid-sized clients struggle for attention. Contact us here to talk about improving your business.

This communication is designed to provide accurate and authoritative information in regard to the subject matter covered at the time it was published. However, the general information herein is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purposes of avoiding tax penalties.

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