On August 2, 2016, the IRS and the U.S. Treasury Department issued proposed regulations under Section 2704 of the Internal Revenue Code that would have the effect of eliminating or scaling back many valuation discounts for family-controlled entities for estate, gift, and generation-skipping transfer tax purposes.
Section 2704 of the IRC was enacted as part of the special valuation rules to close perceived loopholes in how families transfer wealth. The new rules would apply to both operating and non-operating family-controlled entities by targeting lapses of voting or liquidation rights and restrictions that prevent liquidation. This would eliminate the minority and lack of control discounts that many estate planners currently utilize when transferring a small percentage of a family business. For instance, such a transfer could be at a 20% or even 35% discount.
A public hearing for the proposed regulations is scheduled for December 1, 2016, after a public comment period of 90 days. There is also the possibility that Congress could act to block the implementation of the new regulations.
As we approach the end of the year, some families should consider whether they want to accelerate planned sales or gifts before the end of the year to take advantage of valuation discounts.
For more information or to schedule an appointment, call (507) 288-5567 or contact us online.