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The Treasury has issued proposed regulations under Internal Revenue Code Section 2704 that would result in significant changes to the valuation of interests in many family-controlled entities for estate, gift, and generation-skipping transfer tax purposes. If adopted, they would eliminate almost all minority (lack of control) discounts for closely held entity interests, including active businesses, owned by a single family group.
Currently, if an individual transfers an interest in a family business or family limited partnership or other family owned entity, the value of that interest may be discounted to reflect a lack of control over the management of the business or partnership and the difficult in selling an interest in a close held entity. Much of current estate tax planning is geared towards lowering the value of assets in anticipation of lifetime gifts or at death.
The Treasury has scheduled a hearing for December 1, 2016, and stated that the final regulations won’t take effect until at least 30 days after finalization. Hence, if adopted, these regulations would impact lifetime and deathtime transfers early in 2017. Individuals with taxable estates may want to consider taking action before year-end if they hold interests in entities which essentially are closely held by a single family group.
The details provided in the proposed regulations are significant and complex. We will be following this closely. Meanwhile, please feel welcome to contact us if you have any questions about how you might be impacted.