IRS Proposed Regulations regarding Family Owned Businesses

On August 4, 2016, the Internal Revenue Service (IRS) issued proposed regulation REG-163113-02 which, if adopted, would limit or preclude the use of valuation discounts for transfers of interests of family owned businesses for estate, gift, and generation-skipping transfer tax purposes.

The proposed regulations are intended to increase tax collections through higher valuations of transferred interests. To avoid higher taxes, family business interest transfer strategies and succession plans may have to be modified.

The proposed regulations could take effect as soon as the end of 2016, although some experts think it is more likely that they would take effect in 2017 if adopted.

Families who are over the estate tax thresholds still have time to engage in transfer planning to take advantage of the current regulations regarding valuation discounts, which many say result in more accurate valuations compared to the proposed regulations.