August 16, 2016

At the beginning of August, the Treasury Department issued proposed regulations under section 2704(b) of the Internal Revenue Code and a hearing has been scheduled for December 1st, 2016. These new regulations, while still in the proposal period, would take away all valuation discounts for inter family entity transfers that are controlled by the transferor or his or her family. 

While these regulations might not take effect until sometime in the following year, it could be necessary to complete any discount related planning over the next several months. Some of the biggest changes adopted in the proposed regulations are outlined below. These regulations give a broad definition of control. For example, control is classified as holding 50% or more of equity in a company based as an LLC partnership or corporation. For limited partnerships, control is equivalent to having an interest in the LLC’s general partner. The proposed regulations would change valuations for transfer tax purposes of interests in family owned entities that are subject to restrictions on redemptions or liquidations.

Specifically, these restrictions will be disregarded in terms of valuing such interests for estate tax or gift tax purposes when the interest is transferred by a family member. The reasoning behind this is that after such a transfer the restriction would lapse or could be removed by the transferor or a member of his or her family. These would have a significant impact on wealth transfer tax valuation for family controlled entity interest. Practically no minority discounts would be allowed. In order to learn more about this process, you need to consult with a New Jersey estate planning and asset protection planning attorney. A knowledgeable attorney can help you protect your interests- reach out to our office today by contacting info@lawesq.net.