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Treasury Announces Plan to Withdraw Proposed Section 2704 Valuation Rules

by Jennifer Aguilar | Oct 05, 2017

Would Have Reinstituted Family Attribution, Ignored Liquidation Restrictions

On October 2 the Treasury Department announced, in a report entitled “Second Report to the President on Identifying and Reducing Tax Regulatory Burdens,” its intention to withdraw proposed regulations affecting Section 2704 of the Internal Revenue Code “in their entirety.” This announcement marks an end to a process that began in the summer of 2016, when the IRS announced the proposed regulations to widespread opposition. The proposal, in part, would have reinstituted family attribution when distributing minority interests in family-controlled businesses via estate or gift – thereby ignoring the otherwise minority position of the recipient and blocking the usage of a valid discount for lack of control.

The proposal would also have seen IRS require valuation professionals to ignore certain liquidation restrictions on shares in family-controlled businesses, including those imposed as a matter of state law, and would have imposed minimum thresholds for non-family member held interests before they could be treated normally for valuation purposes.

ASA, along with numerous industry and trade groups, opposed the proposed Section 2704 rules – filing comments with the IRS, and subsequently testifying at a hearing on the proposal in December of 2016. Since the election of President Trump, messages from the administration have previously been clear in the intent of Treasury Secretary Steven Mnuchin to withdraw the 2704 proposal.

The Treasury Department and IRS must issue a formal notice of withdrawal, to be published in the Federal Register in the coming days. To read the full text of the Report, click here.