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IRS Moves against Discounted Value for Family Businesses, Elder Law Attorney, Woodstock, GA


For a long time the IRS has been seeking legislative changes to the rules for transferring stakes in family businesses between members of the family. The agency appears to have abandoned that effort and proposed new regulations instead.

One of the key benefits to family held businesses is that transferring ownership shares can often come with a tax benefit. Because many of these businesses have restrictions about when and to whom any shares can be sold, it would be very difficult to find any outside buyer for them willing to pay a fair market price.

It is assumed that any purchaser would want a discount. This could be taken into account when transferring between family members as well. For gift and estate tax purposes the shares can be valued at less than market value.

This is known as a “discounted” value.

For the last decade the IRS has wanted to do away with this discounted value or to at least lower the discount amount. Previously, the agency has asked Congress to act, but now the agency is proposing new regulations to take care of it without congressional action.

This was the subject of a recent Bloomberg article titled “IRS PROPOSES NEW REGULATIONS FOR §2704 — A BETTER MOUSE TRAP?

Experts are divided about the effectiveness of the new regulations.

What the IRS has proposed is extraordinarily complex, even for an agency known for its complex regulations. The courts will also eventually have to decide whether the regulations are appropriate.

For now, people with family businesses need to be aware of these regulations. No changes to any plans should be made until after consulting with an expert estate planning attorney about the regulations and specifically how they affect your plans.

Reference: Bloomberg (Aug. 19, 2016) “IRS PROPOSES NEW REGULATIONS FOR §2704 — A BETTER MOUSE TRAP?

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