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New IRS Rules Would Eliminate Valuation Discounts for Family-Owned Entities

Posted 12:46 PM by

On Aug. 2, 2016, the Internal Revenue Service (IRS) released controversial proposed regulations under Section 2704 of the Internal Revenue Code. These proposed regulations are designed to eliminate minority/marketability discounts for family-owned entities for gift, estate and generation-skipping transfer tax purposes. These entities include operating businesses, as well as investment entities.

The proposed new rules would be effective on and after the date they are published as final regulations. The IRS has solicited comments from the public, and a hearing is scheduled for Dec. 1, 2016. Numerous comments are anticipated. 

If you expect to owe estate tax, you should consider transferring interests in family-owned entities as soon as possible and before December 2016. If you do not expect to owe estate tax, the lack of a discount is desirable to maximize the step-up in income tax basis that occurs at death, based on fair market value at death. For 2016, the federal estate tax exemption is $5.45 million ($10.9 million for married couples).

About the Author
Jay Benjamin is a partner in Katz, Sapper & Miller’s Tax Services Group. Jay’s responsibilities include tax planning for individuals, estates, trusts, exempt organizations and business entities. He works in the areas of estate planning, fiduciary income tax, exempt organizations and employee benefits.

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