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News & Press: The Iowa State Bar Association News

Proposed IRS regulations may eliminate discounts for family-owned businesses

Thursday, September 29, 2016   (0 Comments)
Posted by: Chris Fritz
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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 transfers.


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.

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