Cona Elder Law


Estate Planning Alert: New IRS Proposed Regulations Target Gift Valuation Discounts

For many years the IRS has had in its crosshairs the valuation discount techniques used to reduce the gift tax value of transfers of interests in closely held businesses to family members. New regulations on this issue have been a high priority for the IRS and on August 2, 2016, the IRS released proposed regulations which impose harsh restrictions on the use of those valuation discounts.

The aim of these regulations is to drastically reduce the lack of control and lack of marketability valuation discounts in gifts of family-owned businesses. This severely restricts the estate and gift tax benefits of these transactions and impacts estate planning techniques such as sales to defective grantor trusts, grantor retained annuity trusts, and other gifting transactions.

The regulations first target the lapse of voting or liquidation rights in a family-owned entity which occur within three years of death, treating any such lapses as assets in the transferor’s taxable estate. They also eliminate discounts due to the fact that the recipient is a mere assignee, rather than a full participant in the business.

Most alarmingly, the proposed regulations would also disregard for valuation purposes certain liquidation restrictions. This includes certain restrictions on the ability to liquidate an interest generally, reductions in the value of a liquidation, deferrals of the receipt of liquidation proceeds, and provisions allowing payment of liquidation proceeds in anything other than cash or property.

Call to Action

A public hearing is scheduled for December 1, 2016, and the regulations could go into effect any time thereafter. It is urgent for anyone contemplating gifting interests in a family business to consider completing those gifts now, before these regulations go into effect.

As always, call upon our legal team if we can be of assistance.

About the Author Cona Elder Law

Cona Elder Law is a full service law firm based in Melville, LI. Our firm concentrates in the areas of elder law, estate planning, estate administration and litigation, special needs planning and health care facility representation. We are proud to have been recognized for our innovative strategies, creative techniques and unparalleled negotiating skills unendingly driven toward our paramount objective - satisfying the needs of our clients.

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