While most taxpayers are waiting to see what the results of President Trump’s tax reform plan will bring, the IRS and the Treasury Department recently announced a change that could spell good news for owners of family owned businesses.
Back in 2016, the Treasury Department, along with the IRS, proposed new regulations under Section 2704 of the tax code, which could have significantly changed the valuation of interests in family-owned businesses for estate and gift tax purposes. Specifically, the proposed changes would create new rules for the transfers of interests in a closely held family business. The proposed new regulations would have significantly reduced the “valuation discounts” for gift, estate, and generation-skipping (GST) tax purposes.
On October 2, 2017, as the result of an Executive Order issued by President Trump, the Treasury Department and the IRS announced that the proposed regulations will be withdrawn in their entirety. A press release issued by the Treasury Department, said the regulations “would have hurt family-owned and operated businesses by limiting valuation discounts” and “made it difficult and costly for a family to transfer their businesses to the next generation.”
What Does Revoking the Proposal Mean for Estate Planning?
The now withdrawn regulations, as they were originally proposed, could have reduced, or even totally eliminated valuation discounts, primarily, “lack of control” and “lack of marketability” discounts, that had traditionally been used when valuing the gifting or other transfers of family-owned businesses from one generation to the next. Withdrawal of the proposed regulations means that owners of a family business who transfer the business to younger family members will still be able to do so while taking advantage of the applicable valuation discounts.
How MBAF Can Help
We realize that estate planning for family owned businesses is designed for the long term. We can help you to evaluate your current estate and gift tax strategies in light of the withdrawn proposals, and help you to make sure that you are taking advantage of every opportunity the current tax law permits.
Compliance with and understanding the tax codes regarding valuation and estate planning can be complex. If you would like to benefit from our expertise in these areas, or if you have further questions on this Advisory, do not hesitate to contact our Tax and Accounting Specialists, or call us at 1-800-239-1474.