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Proposed changes to gifting interests has major repercussions for family owned businesses

Family Business Owners encouraged to review their estate planning strategies

By Mark S. Weis, Esq., CPA


For years, taxpayers have been able to use valuation discounts when gifting family business interests and family partnerships to the next generation. The value of the asset transferred was discounted due to it being a minority interest as the recipient had no ability to compel a sale, distribution of profits, etc.  It provided a useful tax saving method to keep the business in the family.

On August 2, 2016, the Department of the Treasury and the IRS released proposed regulations to Section 2704 of the Internal Revenue Code, which, in its current iteration, would essentially eliminate minority (or lack of control) discounts and thereby end a tax planning strategy that has helped to pass interests in family businesses to younger generations. While the proposed regulations are quite lengthy and complex, here are some of the highlights:

The elimination of these valuation discounts not only mean higher estate taxes, but could, in some instances, compel the sale of the family business as the only option of meeting the estate tax burden. Public hearings are being scheduled by the IRS on December 1, 2016. The regulations will go into effect 30 days after they are finalized, sometime in the first quarter of 2017. Rothman Gordon strongly recommends closely-held family business owners and family partnership owners review their estate strategies and act quickly if they plan to gift interests to the next generation, before the new regulations take effect.

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