This past August, the IRS issued proposed regulations which would significantly impact the ability to apply valuation discounts on gift or estate transfers of family controlled business interests including corporations, partnerships, and LLC’s. The use of discounts for lack of control and lack of marketability by family owned businesses has been a staple in estate planning for decades. These discounts can often fall in the range of 25%-40% thereby aiding in the transfer of family-owned businesses to future generations by reducing the impact of gift, estate, and generation skipping taxes. The proposed regulations would impair the availability of discounts where a family (as defined by the regulations) effectively controls a business entity.
The IRS has scheduled a hearing for December 1, 2016, which will set the stage for the regulations to be finalized. The regulations would become effective thirty days after the regulations become final. The IRS could make changes to the regulations based on comments received at the hearing, but it is best to assume that the regulations will become effective in early 2017. Those wishing to take advantage of the current rules and regulations applicable to valuation discounts should move forward promptly in order to complete applicable transfers prior to the new regulations becoming effective. Our tax team advisors are available to consult with you to discuss your individual situation and what actions may or may not be prudent. Please contact us if you have any related questions or a desire to evaluate your options.