Last August, the U.S. Treasury Department issued proposed regulations under Internal Revenue Code § 2704 that could have effectively eliminated consideration of valuation discounts when gifting ownership interests to family members, significantly reducing the amount of wealth that could be transferred without incurring federal estate and gift taxes. For more background on the topic, see our earlier blog: Valuation Discounts in Family Transfers May Be Disappearing.
We have waited in limbo for the past year to learn the fate of these proposed changes to the tax code. Just over a week ago, the estate and gift tax planning world finally received some closure. The Treasury Department called for the withdrawal of the proposed regulations that would have limited the ability to apply valuation discounts for estate and gift tax purposes. This decision provides some much needed clarification of the estate and gift tax landscape for business owners and the professionals that advise them. (See Forbes article: Treasury to Withdraw Hated Estate Tax Valuation Rules.)
In short, valuation discounts are still in play for estate and gift purposes. However, just as before the proposed regulations were issued, it is important that any valuation discounts applied are appropriately supported in valuation analyses that will be subject to IRS review.
Do you have questions about valuation methods? Click here to read my article in Smart Business, Business Valuations: How to Avoid Common Errors. Please feel free to reach out to me at 440-449-6800 or email@example.com if you would like to discuss the topics covered in this blog.