On August 2, 2016, the United States Treasury issued proposed regulations to Section 2704 of the Internal Revenue Code.
It appears that these regulations will have a dramatic effect on the ability of taxpayers to utilize minority interest and lack of marketability discounts in connection with the sale or gift of interests in closely held entities (whether those entities hold passive investments or an active trade or business).
The regulations would apply to both lifetime transfers and transfers at death.
It is important to note that the proposed regulations affecting valuation discounts will not apply until 30 days after being published as final regulations.
The IRS has scheduled a public hearing on these proposed regulations on December 1, 2016.
It is anticipated that the regulations will not become final regulations until after the public hearing.
Consequently, it is likely that the regulations will not apply to any transfers made in 2016.
Many commentators have indicated that the proposed regulations may be overreaching by the IRS and/or contrary to existing law. It is therefore likely that if the proposed regulations become final regulations, they will be challenged in the courts.
In any event, taxpayers may want to consider planning opportunities with their closely held entities prior to the issuance of these final regulations to take advantage of any available valuation discounts.
With the possibility of these proposed regulations becoming final regulations by the end of this year, any such planning should be initiated as soon as possible. Contact any member of Gunster’s private wealth services team for more information.
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This publication is for general information only. It is not legal advice, and legal counsel should be contacted before any action is taken that might be influenced by this publication.
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