I've written before about the new proposed Treasury
Regulations under Section 2704 of the Internal Revenue Code. The
new regulations would limit the ability of owners of family
businesses and other closely held business interests to transfer a
portion of their ownership at a discount. These regulations would
change asset transfer techniques that have been used for many
years, and that have saved taxpayers many millions of dollars in
federal estate taxes and state inheritance taxes. Very basically,
if you transfer a minority interest in a business to someone or to
a trust or other entity, and that minority interest has no control
over the business and can't be sold, it's worth less than
the underlying value of the assets transferred. The amount of the
discount is established by an expert appraiser. These discount
techniques are well-established, but because they generally result
in a loss of tax revenue, the Treasury doesn't like them.
The new regulations aren't effective yet, and probably
won't be until some time next year, so there is time to make
some transfers now to use the discount techniques. But, as many
commentators have said, it's not a good idea to make transfers
solely to save taxes. It should be part of an overall transition
plan. Who should receive a portion of the business, and when? What
if anything should be done for other family members who are not
involved in the family business? How do the transfers fit within
the original owner's plans for retirement or lesser activity in
the business? Every situation stands on its own facts, but now is a
good time to start thinking about the process and, if appropriate,
to make transfers before the new rules go into effect.
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guide to the subject matter. Specialist advice should be sought
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On August 4, 2016, the Treasury Department and the IRS published Proposed Regulations under Internal Revenue Code § 2704 that, once effective, will eliminate most valuation discounts in connection with interests in family controlled corporations, partnerships, limited liability companies and other business entities
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