Navigating the New Section 2704 Discount Valuation and Transfer Regulations: What Estate Planners Must Do Now

Description

On Aug. 2, 2016, the IRS issued long-anticipated proposed regulations under Section 2704 of the Internal Revenue Code that would make broad and significant changes to valuation of interests in family-controlled entities for estate, gift and generation-skipping transfer tax purposes. The new rules are intended to apply to both operating and non-operating family-owned or family-controlled entities and would eliminate or curtail many valuation discounts as well as some techniques estate planners currently utilize in connection with transfers of interests in such entities. Specifically, the new rules target lapses of voting or liquidation rights and eliminate some valuation discounting opportunities in determining the fair market value of a transferred interest.

The public hearing on the proposed regulations is scheduled for December 1, 2016. Certain provisions of the proposed regulations will become effective with respect to transfers that occur on or after the date the final regulations are published, and others will apply to transfers occurring 30 or more days after such publication. In particular, the latter period will apply to transfers of interests that are subject to restrictions falling into a newly defined category of “disregarded restrictions.” This could well mean that much current discount planning will become obsolete after this year. Estate planning counsel should consider accelerating planned sales or gift transfers so that these are completed this year, and advising clients that were on the fence to plan proactively now.

Listen as our experienced panel provides a critical first look at the newly proposed regulations and offers practical guidance on what planners should be doing now to assist clients in utilizing soon-to-expire valuation opportunities.