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Proposed IRS Regulations Target Valuation Discounts for Family-Owned Businesses

September 2016

By: Joseph M. Bellew

Valuation discounts for lack of control and lack of marketability can significantly reduce estate and gift taxes otherwise payable in connection with gifts or bequests of creatively-structured family enterprises.  The result is less tax paid on intra-family transfers and greater wealth accumulation for the family.  Up to now, the IRS has been largely unsuccessful in challenging such discounts, and Congress has refused to take up the matter.

This past summer, the IRS issued proposed regulations to the Internal Revenue Code.  The proposed regulations, if and when finalized, would substantially reduce or eliminate the discounting of family business interests for gift and estate tax purposes.    A public hearing on the proposed regulations is scheduled for December 1, 2016, and the IRS might issue final regulations early next year.  Until the proposed regulations are finalized, and possibly for 30 days after that, there is still an opportunity to structure inter-family transfers to maximize net after-tax family wealth accumulation using tried and true valuation discounts.  But this window of opportunity may be a brief one.  We encourage the reader to discuss best practices for your family-owned business with one of our experienced estates and trusts attorneys.

For more information about this proposed regulation or other business and tax matters, contact Joe Bellew, Brian Balenson, Barry Weiskopf, or Steve Hess.

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