Proposed New IRS Rules for Valuing Interest in Family-Controlled Entities May Curb Discounts For Estate, Gift and Generation-Skipping Tax Purposes

By and on August 5, 2016

On August 2, 2016, the US Department of the Treasury issued long-awaited, proposed regulations on the valuation of interests in family-controlled entities for estate, gift and generation-skipping tax purposes. If finalized, these new rules are likely to substantially increase estate taxes payable by the estates of owners of family-controlled businesses, farms, real estate companies and investment companies. They would overturn well-settled law that for decades has allowed valuation discounts to be applied to these interests. Estate planners have long relied on the current rules in minimizing the transfer tax cost of passing family-controlled entities from one generation to the next.

The new rules are in proposed form and are not effective until issued in final form. This will probably not occur until sometime next year at the earliest. Proposed regulations often are changed, sometimes materially, before they are finalized. And sometimes they are not finalized quickly or at all. As a result, no one can be certain of the final form that these rules will take or when they will become effective, if at all.

That said, for some of you this may be an opportunity to plan your estate under current law for at least a few more months. We recommend that you discuss with your estate planner whether you should consider further steps now in light of these possible rule changes. If you have transactions in process, you may want to consider accelerating their completion. At a minimum, this possible law change may act as a prompt for families to have needed—perhaps long overdue—tax, succession and estate planning discussions with their professional advisers.

View recent press coverage of the proposed regulations.

Read our past discussions of these regulations and also our post on recent developments.

Carlyn S. McCaffreyCarlyn S. McCaffrey
Carlyn S. McCaffrey provides legal counsel on domestic and international tax and estate planning for high-net-worth individuals. She also advises individuals and institutions on charitable planning matters. Carlyn is co-head of the Private Client practice in the Firm's New York office. A frequent lecturer on subjects relating to tax law, trusts and estates, foreign trusts and matrimonial law, Carlyn is also an extensively published author on these topics. Read Carlyn McCaffrey's full bio.


Richard L. DeesRichard L. Dees
Richard L. Dees advises owners of privately and publicly held companies and wealthy families on control, tax, and business planning issues. Richard helps clients save estate taxes and develop succession plans targeted for S corporations, and regularly consults with other lawyers, accountants, financial planners, insurance consultants and trust officers on Internal Revenue Service (IRS) litigation and structuring business transactions. He also has experience on the farm estate tax valuation rules under Code Section 2032A and advises farmers, landowners, and real estate professionals on a variety of tax, leasing and business-planning issues. Read Richard Dees full bio.

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