On Aug. 2, 2016, the Treasury Department released proposed new regulations that may affect all lifetime or post-death intra-family transfers of business entities.

While it’s early in the game, and the new regulations may yet be tweaked, this proposal clearly indicates the government’s intent to abolish valuation discounts for estate and gift tax purposes.

What You Need to Know Now

This change could dramatically increase the estate tax liability for many family business owners. Here’s what you need to know right now.

In 1990 the Treasury Department laid out a set of regulations designed to reduce the number of available options estate planners had in their toolboxes to help business owners preserve their family-owned businesses.

One technique that survived was valuation discounts of 15% to 40% for lack of control and lack of marketability of closely held assets.

The aggressive new rules might eliminate valuation discounts completely and add significant financial and liquidity strains on successful family-owned companies.

One of the most onerous pieces of the new regulations allows for a “Three Year Rule” lookback provision that would apply to all estate and gift transactions.

Most experts believe these would also apply to an intra-family sale.

Don’t Delay

If you’ve been procrastinating on transferring your family-owned business wealth to the next generation, this might be a shot across your bow to get moving.

These new rules could become effective as early as Q2 in 2017.

Careful, well-considered 21st century family business planning can keep your hard-earned assets in calm waters for years to come.

Public Comment

Written and electronic comments on the proposed regulations must be received by Nov. 2, 2016.

A public hearing on the proposed regulations will be held Dec. 1, 2016, in the auditorium at the Internal Revenue Service Building, 1111 Constitution Avenue NW, Washington, DC 20224.

Outlines of topics to be discussed at the public hearing must be received by November 2, 2016.

Send comments electronically (enter IRS REG-163113-02 into the search window) or mail submissions to CC:PA:LPD:PR (REG-163113-02), Room 5203, Internal Revenue Service, POB 7604, Ben Franklin Station, Washington, DC 20044.


Author: Bill Babb, senior consultant with the Family Business Institute. Republished with permission from the Family Business Institute.