Bill Roeser, CPA, CFP
Valuation Discounts to End with Proposed Rules
On August 4 of this summer, the Internal Revenue Service (IRS) issued proposed rules concerning the valuation of interests in family-owned corporations and partnerships for estate and gift tax purposes. If these proposed rules are adopted in their current form, they will have a significant (and negative) impact on estate planning for many families. Specifically, valuation discounts for certain intra-family transfers (including bequests, gifts and sales) of interests in corporations and partnerships, which have for many years been widely available, will be severely limited going forward. These discounts were for lack of control and marketability of the transferred interests.
Fortunately, the proposed rules will generally only apply to transfers occurring on or after the date the final rules are published by the IRS, and that probably won’t happen until the spring or summer of 2017. Thus, the current rules will continue to apply until that time and many people will likely use this window of opportunity to complete transfers of interests in family-owned entities.
It is possible that the final rules will be less draconian than the proposed rules, but significant changes to the proposed rules are not expected. However, the results of the presidential election could have an impact on the final version. So, if you want to take advantage of the current estate tax and gift tax valuation rules, which allow valuation discounts for gifts of minority interests in family businesses, the time to act is over the next six months or so.