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On August 4, the Treasury Department issued long-awaited Proposed Regulations (Proposed Regulations) on valuation discounts for family-owned businesses under §2704 of the Internal Revenue Code (Code). The Proposed Regulations are out for comment until a public hearing on December 1, 2016, and will become effective on or after the date of publication of a Treasury decision adopting the Proposed Regulations as final regulations. Many practitioners feared that the Proposed Regulations would completely eliminate all valuation discounts in all contexts. Although the Proposed Regulations did not go that far, they did introduce significant changes that eliminate almost all valuation discounts in the family context. These changes clarify the application of Code §2704 and curb transfer tax valuation discounts used by family-owned businesses. The Proposed Regulations: • Apply to limited liability companies (LLCs) and address what constitutes control of an LLC or other entity or arrangement that is not a corporation, partnership, or limited partnership. • Restrict “deathbed transfers” that result in the lapse of a liquidation right and clarify the treatment of a transfer that creates an assignee interest. • Refine the definition of the term Applicable Restriction by eliminating the comparison to state law liquidation limitations. • Add a new section to address restrictions on the liquidation of an individual interest in an entity and the effect of insubstantial interests held by persons who are not members of the family. This paper analyzes each of these changes in light of prior law. It concludes with a list of practical takeaways to help your family-owned business clients navigate the new rules.

Link here.


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David R. Duringer, JD, LL.M, is a concealed firearm instructor and tax lawyer specializing in business and estate planning; licensed to practice law in the states of California and Washington. He is managing shareholder at Protective Law Corporation, serving Southern California from its Laguna Hills (Orange County) headquarters and satellite offices in San Diego County (Coronado and Carlsbad).

© Protective Law Corporation as per date of publication captioned above. All rights reserved unless otherwise noted. Sharing encouraged with attribution and/or link to this page.



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