In 2016, the Department of Treasury proposed new regulations for Section 2704 of the Internal Revenue Code. The proposed regulations would have significantly minimized or eliminated discounts for family limited partnerships and other entities. Earlier this year, President Trump had directed the Treasury Department to review the proposed regulations. In early October, the Treasury Department announced it would withdraw its proposed regulations limiting discounts.
Discounting is just one method some families for transferring farm land and other assets to children. Rather than transferring farm land directly to children, a retiring farmer could place the land into a limited liability entity with restrictions regarding voting and transfers. This allows the retiring farmer to transfer an interest in the entity at a discount of as much as 50% to reflect the restrictions. See our post Frameworks for Farm Transitions for more background on farm entities.
Although the proposed regulations will not be enacted, discounting is not always appropriate. Recently, the IRS was successful in attacking an aggressive death bed gift of a discounted family limited partnership in a recent tax case (Estate of Powell). In our view, this case shows that it is still important that discount gifting be done for a legitimate business purpose that is coordinated with the estate plan.
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