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How will the new proposed IRS regulations related to valuation discounts impact my business planning?
Posted in Estate Planning
How will the new proposed IRS regulations related to valuation discounts impact my business planning?

For decades, small business owners have utilized valuation discounts in order to minimize estate and gift taxes while at the same time providing for an orderly transition of ownership and management to the next generation. The way it worked was simple; the business was placed into a family limited partnership or recapitalized with controlling and non-controlling interests. The owner then gifted limited partnership or non-voting interests to the younger generation of the family over multiple years, taking advantage of the annual gift exclusion while at the same time lowering the taxable estate of the older generation. Because the interests being gifted were generally minority interests, they were subject to valuation discounts allowing families to transfer wealth at deeply discounted rates.

The IRS recently issued proposed regulations (Reg-163113-02) that would effectively close this planning tool and make it extremely difficult, if not impossible, to use this type of discount planning. The new regulations will, among other things, disregard transfers between family members when determining control. This will have the effect of limiting valuation discounts for transfers between family members. The good news is that there is still time to take advantage of this planning before the regulations are finalized (likely by the end of this year). If you own a business and have an estate that may be taxable, now is the time to consult with a planner to utilize this planning device before the IRS takes it away!

To learn more about Steven R. Wilson and his practice, please visit his profile.

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  • Partner

    Steve concentrates his practice in the area of trusts and estates, including planning, administration and dispute resolution.  He also has experience in business succession planning, commercial real estate transactions and ...



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