TAX ALERT: IRS Proposes to Eliminate Valuation Discounts for the Transfer of Interests in Family Owned Entities

On August 2, 2016, the IRS issued proposed regulations under Section 2704 of the Internal Revenue Code.  The regulations address the valuation of interests in family owned partnerships, limited liability companies and corporations for Federal gift, estate and generation-skipping transfer (GST) tax purposes. 

If finalized, the regulations would significantly reduce, and possibly eliminate, certain discounts that are typically taken when valuing interests in family owned entities for gift, estate and GST tax purposes, including discounts for lack of marketability and minority interest.  In short, the regulations would make it more difficult for a taxpayer to transfer such interests to other family members free of transfer taxes.

The regulations will, in general, apply to transfers of interests in family owned entities occurring on or after the date the regulations are published as final regulations.  A public hearing is scheduled for December 1, 2016, and we anticipate the commentary that will be provided at such hearing will be critical of the regulations and may result in changes.  Nonetheless, we are proceeding under the assumption that the regulations will be published as final regulations sometime in 2017.

If you are in the process of transferring interests in a family owned entity to, or in trust for the benefit of, another family member, or if you are contemplating doing so, we recommend completing such transfer as soon as possible. 

If you would like to obtain more information regarding the proposed regulations, please contact one of our Wealth and Succession Planning attorneys.

Karen K. MacKay, (312) 840-7009, kmackay@burkelaw.com

Mary K. McWilliams, (312) 840-7081, mmcwilliams@burkelaw.com

Jonathan W. Michael, (312) 840-7049, jmichael@burkelaw.com

Martin P. Ryan, (312) 840-7060, mryan@burkelaw.com

Melanie L. Witt, (312) 840-7041, mwitt@burkelaw.com

Anna Kardaras, (312) 840-7091, akardaras@burkelaw.com

Gregory M. Winters, (312) 840-7059, gwinters@burkelaw.com