Done with Discounts? New IRS Proposals Aim to Eliminate Valuation Discounts for Closely-Held Businesses
On August 2, 2016, the IRS released proposed regulations that, if finalized as proposed, would all but eliminate most currently available valuation discounts for interests in family controlled entities, including operating businesses. These proposed regulations, relating to Section 2704 of the Internal Revenue Code, attack discounts for lack of control and/or marketability in connection with transfers of interests in family controlled entities, thereby limiting tax planning opportunities and increasing potential estate tax liability.
A public hearing concerning the proposals has been scheduled for December 1, 2016. Given the possibility that these proposed regulations may become effective within the next several months, clients who own interests in family controlled entities should think about making transfers as soon as possible to take advantage of the discounts before the IRS finalizes the proposed regulations and the discounts disappear.