On August 2, 2016, The Internal Revenue Service (IRS) issued much anticipated proposed regulations that would limit the use of discounts when valuing interests in family entities for estate, gift and generation-skipping transfer tax purposes. If made final in their current form, the regulations will restrict the use of “minority,” “lack of marketability” and “lack of control” discounts, thereby increasing the valuation for estate, gift and generation-skipping transfer tax purposes of any interests transferred or owned at death.
The new rules would apply to any transfers occurring 30 days after the regulations are finalized. Thus, importantly, the proposed regulations will become effective only at or soon after issuance of final regulations, thus eliminating any concerns of retroactive application.  The 90-day comment period will close on November 2, 2016, and the IRS has announced a plan to hold a public hearing on the proposed regulations on December 1, 2016. 250 spots were open for the hearing PATG has signed up for 20 seats

Over the next three months, PATG will undertake the following strategic initiatives to mitigate the impact of the proposed regulations on our families:

  1.     Coordinate the effort to draft, edit, finalize and submit comments to the regulatory docket from a broad and diverse range of stakeholders:

These stakeholders will include, but not be limited to, the Family Business Estate Tax Coalition, the Real Property Trust and Estate and Tax Sections of the American Bar Association, the American Bankers Association, the Private Investors Coalition, the American Institute of Certified Public Accountants, individual estate tax planning professionals, trade associations and individual family businesses. The goal will be to have an overwhelming number of comments evidencing that the proposed regulations (i) represent a step backward from the bi-partisan, permanent estate tax relief enacted in 2012, (ii) will have immediate, negative economic impacts on the family business community and reduce the level of family business job creation, (iii) are wholly inconsistent with established legal precedent, and (iv) unfairly discriminate against the unique structures of family held businesses.

II.     Coordinate the effort to develop and implement a federal legislative response to repeal, or limit the scope of, the regulations once finalized: While there will not be an opportunity to move legislation during the current 114th Congress, it may be helpful to have a bill(s) introduced this year to signal the intent of Congress to move legislation in the 115th Congress. Although the grant of regulatory authority under Section 2704(b) is broad, the legislative history expressly provided that Section 2704 would not affect minority and other similar valuation discounts.  The need to clarify congressional intent could thus provide the basis of a legislative response.

III.    Identify the most favorable avenues to challenge the legal validity of the proposed regulations: Ultimately, a court will need to determine whether the regulations are consistent with the underlying statute and to what extent legislative history is relevant and controlling.

You can provide feedback to the Treasury, during this public opinion period;