On August 2, 2016, the Internal Revenue Service (IRS) proposed regulations under Section 2704(b) of the Internal Revenue Code that would significantly restrict valuation discounts for interests in many family-controlled businesses for gift and estate tax purposes.

If adopted in their current form, the proposed regulations would eliminate certain methods that taxpayers have traditionally relied upon to reduce the fair market value of their interests in family-controlled businesses for estate and gift tax purposes, such as minority or lack of control valuation discounts. These restrictions on valuation discounts would reduce the effectiveness of traditional estate planning techniques utilized under current law. The proposed regulations would apply to transfers that occur after the regulations are published as final.

What This Means to You

Due to the potentially large impact on family-controlled businesses, challenges to the proposed regulations are expected. The IRS public hearing on the proposed regulations will be held December 1, 2016, and the regulations will not become final until at least 30 days thereafter. If you have a business that might be impacted by the new proposed regulations, you should consider implementing a business succession plan now so that you can utilize valuation discounts before the proposed regulations become final.