Proposed changes to Internal Revenue Code (IRC) \u00a7 2704, which would impact the valuation of transfers of family business interests at death, come at an interesting time politically given the Trump Administration\u2019s desire to eliminate the federal estate tax altogether.<\/p>\n
The regulations proposed in \u00a7 2704 \u00a0will at least be delayed, if not outright halted, in light of President Trump\u2019s executive order mandating that federal agencies eliminate two rules for every new one adopted. \u00a0A January White House memorandum that put a freeze on all federal rulemaking pending the administration\u2019s review of existing proposals could raise additional roadblocks to the implementation of the Treasury\u2019s proposed regulations.<\/p>\n
The proposed regulations, issued in August 2016, seek to limit the ability of family business owners to obtain valuation discounts on transfers of their business interests at death, thereby increasing their potential estate tax burden. \u00a0Section 2704 sets forth valuation rules for purposes of estate, gift and generation-skipping transfer taxes. \u00a0Until now, restrictions on voting and liquidation rights of business interests passing through decedents\u2019 estates have created discounted valuations for estate tax purposes. \u00a0This valuation discount comes as the result of a lack of marketability and control of the restricted business interests.<\/p>\n
The proposed regulations would allow the IRS to disregard \u201cdeathbed\u201d restrictions placed on business interests and the discount that has typically accompanied such restrictions. \u00a0The IRS would instead treat any termination of voting and liquidation rights occurring within three years of the business owner\u2019s death as a transfer at death<\/em> for \u00a7 2704 valuation purposes. \u00a0This means the entire value of the business owner\u2019s transferred interest would be included in his or her taxable estate irrespective of any restrictions that take effect at the business owner\u2019s death.<\/p>\n However, the Trump administration\u2019s proposed estate tax repeal could negate the effect of such a proposal (depending on what replaces the estate tax) since the transfer of business interests at death would not cause a taxable event. \u00a0Speculation abounds over what kind of transfer tax regime might take the place of the estate tax if it is repealed, with some predicting a retention of the gift tax, reimplementation of a carryover basis regime, and\/or a tax imposed on unrealized capital gains at death.<\/p>\n","protected":false},"excerpt":{"rendered":" Proposed changes to Internal Revenue Code (IRC) \u00a7 2704, which would impact the valuation of transfers of family business interests at death, come at an interesting time politically given the Trump Administration\u2019s desire to eliminate the federal estate tax altogether. The regulations…<\/p>\n","protected":false},"author":7,"featured_media":0,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":true,"footnotes":""},"categories":[63,54],"tags":[],"class_list":["post-126","post","type-post","status-publish","format-standard","hentry","category-business-succession-planning","category-trusts-and-estates"],"acf":[],"_links":{"self":[{"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/posts\/126","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/users\/7"}],"replies":[{"embeddable":true,"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/comments?post=126"}],"version-history":[{"count":0,"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/posts\/126\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/media?parent=126"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/categories?post=126"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.apslaw.com\/its-your-business\/wp-json\/wp\/v2\/tags?post=126"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}