Proposed IRS Regulations May Eliminate Long-Standing Discounts for Family-Owned Businesses

Sep 19, 2016

The Internal Revenue Service (IRS) released proposed regulations on August 2, 2016, that would modify and expand Internal Revenue Code 2704 (IRC 2704) impacting the valuation of privately-held, minority interests that are controlled by the same family. 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. While many attorneys, accountants and business advisors expected the regulations to target partnerships with liquid assets, 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.

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