Treasury Response re: Estate Tax

As we previously reported, PATG has been tracking speculation from inside and outside Washington that the IRS may issue proposed regulations aimed at curbing the availability of valuation discounts for interests in closely-held entities. As you know, such a change could substantially increase the estate tax burden of many family enterprises. We recently received confirmation that those regulations are in fact on the horizon.

In response to an October 3, 2014 letter to the Treasury Department opposing potential regulatory action sent by Sen. John Thune (R-SD) and Senate Finance Committee members Chairman Orrin Hatch (UT), John Cornyn (TX), Mike Crapo (ID), Mike Enzi (WY), Chuck Grassley (IA), Johnny Isakson (GA) and Pat Roberts (KS), the IRS has confirmed  our concerns were valid.

In a January 29, 2015 letter to Sen. Thune, the lead advocate for estate tax relief in the Senate, the Treasury Department stated: “We are currently working on proposed regulations under [IRC Section 2704], which we hope to publish within the next several months. As with all proposed tax regulations, these proposed regulations will be subject to notice-and-comment procedures, and all comments received will be given careful consideration before the issuance of final regulations.”

By way of background, on August 26, 2014, the IRS expressed its intention to target this legitimate and widely-used planning practice in its 2014-2015 Priority Guidance Plan (See item 9 on Page 17). It was that release Sen. Thune’s letter sought to address. On January 29, 2015, the IRS restated its intention to issue proposed regulations in its updated 2014-2015 Priority Guidance Plan (See item 9 on page 20). The Obama Administration had previously sought legislative changes to limit discounts as part of its first four budget outlines it presented to Congress but omitted the proposal in the President’s most recent FY 2014 and 2015 budgets.

As the IRS continues to craft these regulations, PATG will undertake an aggressive and proactive effort to fend off these regulations and reduce the risk to families impacted by the estate tax. PATG will continue to work with our allies on Capitol Hill including Sen. Thune to ensure that legislators remain vigilant and express opposition should such a regulation ever move forward. In addition, we are crafting legislative language that would remove the authority the IRS currently possesses to issue regulations under Section 2704 of the Internal Revenue Code. This would end the threat of these regulations once and for all.

These recent developments highlight the fact that, while we strive for further relief and ultimate repeal of this burdensome and confiscatory tax, the threat to family businesses of higher estate taxes through legislative or regulatory action must also be addressed. Whether as a revenue offset in tax reform, the President’s budget or through IRS regulation, the exemption and rate parameters made permanent in the 2012 “fiscal cliff” deal are clearly not considered “settled law”. PATG’s work and your continued support are as important as ever!

We will keep you updated as developments occur. If you have questions or would like a copy of the Thune letter, the Treasury letter or the legislative language we are drafting, please don’t hesitate to reach out.

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