October 5, 2017

IRS and Treasury to Withdraw Proposed Regulations that Would Affect Discounts Applied to Transfers of Family-Owned Businesses

Contributor Ronald Finkelstein, Partner, Tax & Business Services

Related Services Tax & Business, Tax Return Compliance

IRS and Treasury to Withdraw Proposed Regulations that Would Affect Discounts Applied to Transfers of Family-Owned Businesses Tax & Business

On October 2, 2017, The Trump Administration issued Executive Order 13789. Included in this Executive Order, the IRS and the Treasury establish that they will withdraw the Section 2704 proposed regulations in their entirety.

BACKGROUND

In 2016, the U.S. Treasury and Internal Revenue Service issued proposed regulations that would prevent minority interest and lack of marketability discounts for certain family-owned entities. Specifically, the proposed regulations provided new rules which would value transfers of interests in a closely held business without considering certain restrictions placed on those interests. These rules would have significantly reduced lack of control and marketability discounts for gift, estate, and generation-skipping (GST) tax purposes.

On April 21, 2017, President Trump issued an Executive Order instructing the Treasury to identify and reduce the regulatory burdens. In response to the Executive Order, the IRS and Treasury issued Notice 2017-38. That notice identified these proposed regulations as unduly burdensome and/or unduly complex. In response to a public request for comments, the Treasury received thousands of comments relating to the proposed 2704 regulations as well as seven other regulations that were considered to be unduly burdensome.

On October 2, 2017, the U.S. Department of the Treasury issued a second report to the President on Identifying and Reducing Tax Regulatory Burdens. In this report, Treasury and the IRS stated they “believe that the proposed regulation’s approach to the problem of artificial valuation discounts is unworkable.” In light of this and other concerns, Treasury and the IRS “believe that these proposed regulations should be withdrawn in their entirety.” The withdrawal will be soon published in the Federal Register.

Contributor

Ronald  Finkelstein

Ronald Finkelstein

Partner

  • Tax & Business
  • Melville, NY