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Treasury Department Proposes Regulations on Valuation Discounts

Dustin E. Lobaugh  | Published on 9/1/2016

On August 4, 2016, Proposed Regulations under IRC Section 2704 were published by the Treasury Department.  These regulations would eliminate most valuation discounts regarding estate and gift tax valuations for family controlled businesses.   For years, gift and estate tax planners have been able to assist clients with transferring interests in family controlled businesses to the next generation at less than fair market value using discounts for minority ownership and lack of marketability.  Public comments have been requested on the Proposed Regulation, and a hearing is scheduled for December 1st.  Barring and changes by the Treasury Department, these regulations will become effective 30 days after publication in the Federal Register (most likely in January 2017).  

There have been questions from tax and legal professionals as to whether these new regulations exceed the regulatory authority of the Treasury under Code Section 2704.  These new regulations will undoubtedly be challenged in the Courts, but this will be long after they have been finalized and implemented.  If you have clients considering gifts of family business interests, it may be prudent to encourage expediting the transfers prior to the end of 2016 to be sure they can still take advantage of certain valuation discounts.

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