The Internal Revenue
Service released proposed regulations in early August that would modify and
expand Internal Revenue Code
2704 impacting the valuation of privately-held, minority interests
that are controlled by the same family. The proposed regulations are subject to
a 90-day public comment period which ends Nov. 2.
Since the tax court
decision of Kerr v. Commissioner (113 T.C. No. 30), the IRS has been concerned
that certain loopholes exist in IRC 2704 that allow taxpayers to gift interests
to family members in entities that have no business purpose and allow the
transfer of wealth without due consideration of the value to the transferor.
Many attorneys, accountants and business advisors expected the regulations to
target partnerships with liquid assets. However, the ramifications of the
regulations appear to be more far-reaching than initially believed and may have
unintended consequences for valuation discounts for intra-family interest
Advisors who think
their clients might be impacted by the changed regulations should review their
clients’ personal situations and estate plans and, if such transfers were being
considered or planned, implement them before the proposed regulations are
issued. Read the full article here.