On August 2, 2016, the Internal Revenue Service issued proposed regulations that will have a significant adverse effect on the valuation of many family owned or controlled businesses for federal estate and gift tax purposes.
These regulations, if finalized, would:
- Eliminate or substantially reduce lack of control and minority interest discounts for many transfers involving lapses in voting rights and liquidation rights.
- Eliminate discounts based upon a transferee being an assignee rather than a full owner.
- Increase valuation of ownership interests by disregarding restrictions on liquidation not required by federal or state law.
- Clarify that in addition to corporations and partnerships, limited liability companies and other entities are covered by the regulations.
These proposed regulations are subject to comment with a public hearing scheduled on December 1, 2016. The regulations are likely to become final sometime in 2017. As a result, business owners that are considering making gifts or other transfers to family members should consult with their attorney and tax advisor to discuss taking action prior to the end of 2016.
About the Author
Mark S. Samila, a Co-Managing Partner at Kahn, Dees, Donovan & Kahn, LLP, in Evansville, Indiana, is a business attorney, Indiana Registered Civil Mediator and Licensed Certified Public Accountant (Missouri) whose practice includes tax and estate planning, financial services including bank and bond financing, creditors’ rights, workouts and bankruptcy and business law. Mark blends his accounting and financial background with his legal experience. In so doing, he provides legal analysis and also understands and considers the business and financial implications of a client’s legal options.