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ASA and ASFMRA Submit Written Comments to IRS on Section 2704 Proposal

by Jennifer Aguilar | Oct 31, 2016

The American Society of Appraisers (ASA), joined by the American Society of Farm Managers and Rural Appraisers (ASFMRA) has filed written comments with the Internal Revenue Service (IRS) related to the IRS’s proposed regulations affecting estate, gift, or generation-skipping transfers between family members under Internal Revenue Code Section 2704. In its comments, ASA and ASFMRA urge the IRS to either withdraw and repropose its proposal, or to afford stakeholders an opportunity to review a second iteration of the proposal through a Further Notice of Proposed Rulemaking. This is based on ASA and ASFMRA’s interpretation of, and concerns with, the valuation methods being relied upon under the proposal as well as the impact on businesses subject to this proposal. Specifically, ASA and ASFMRA’s comment letter states:
  • The IRS’s proposal is contrary to accepted, well developed valuation theory and practice;
  • The IRS’s proposal appears to reintroduce “family attribution” to valuation – a concept that had been roundly discarded;
  • The proposal violates the seminal Revenue Ruling 59-60, and its definition of Fair Market Value;
  • The proposal describes the liquidation of an interest, while Fair Market Value contemplates a sale;
  • The IRS, in its proposal, elects to ignore numerous otherwise reasonable marketability restrictions – including those imposed as a matter of state law; and,
  • While the IRS may have legitimate concerns relating to the abuse of discounts with some corporate structures, the proposal’s construction and breadth will lead to widespread confusion and go well beyond the perceived problems the IRS wishes to address here.
The consequence of this proposal is that family-owned businesses who intend to pass interests via a gift or through the estate could be facing significantly increased tax liabilities, based on the increased “minimum value” of the interest. For family-owned businesses, this will mean delays in capital investments, hiring, and payroll increases, and could even require them to take on more debt simply in order to pay the increased tax bill. Often, the perceived wealth of these families is tied up in the business venture, meaning there simply is not enough cash to address this looming increase in taxes.

ASA has also requested an opportunity to provide testimony at the IRS hearing on this proposal, scheduled for December 1 in Washington, DC, and intend to have Will Frazier, ASA, testify on behalf of the organization.

To read the full text of ASA and ASFMRA’s comments to IRS, click here. If you have any questions specifically dealing with ASA’s comments, please contact John D. Russell, JD, Senior Director of Government Relations and Chief Lobbyist for ASA at jrussell@appraisers.org, or 703-733-2103.