IRS Regulations: Navigating the impact on family-owned businesses

IRS Regulations: Navigating the impact on family-owned businesses

How will newly proposed tax regulations affect your business?

New IRS regulations are being proposed this year that, if put into effect, will likely have a dramatic impact on your family-owned business. The proposed regulations address estate, gift, and generation skipping-transfer (GST) taxes. If you have a family-controlled entity or business with a net worth more than $5 or $6 million, the proposed changes may affect you. Here you can find out what they are, how they might affect your business interests, and how we can help you navigate these changing waters.

On August 2, 2016, the United States Treasury Department released the proposed regulations that amend and expand upon the current Internal Revenue Code Section 2704 regulations. The proposed regulations were subject to a 90-day comment period after which, a public hearing will be held today, December 1, 2016, to address the comments received. Purportedly, approximately 9,000 comments were received. After the hearing, the proposed regulations may be further revised or published as final without warning. Parts of the proposed 2704 regulations will be effective upon the date they are published as final regulations and other parts will become effective 30-days after.

The proposed regulations attempt to prevent perceived valuation discount abuses; however, as currently drafted, the regulations will likely have a much broader impact on legitimate valuation discounts applied in fair market value determinations of equity interests in family-controlled entities. More specifically, if adopted and finalized, the regulations will greatly restrict or eliminate minority interest discounts and lack of marketability discounts for equity interests transferred during life or at death in a family-controlled entity. If discounts are disallowed or restricted, valuations and gift and estate taxes, are likely to be increased. Also, many restrictions imposed on the sale, exchange, redemption, or liquidation of interests in a family-controlled entity would be disregarded when valuing the interests.

Although the finalization of the proposed 2704 regulations may be stalled because of the election results and the vast commentary submitted during the comment period, the proposed 2704 regulations may still be finalized. If you are anxious about what this means for the future of your family, your business, or your legacy, we are here to help. At BB&C, we help our clients navigate all of life’s challenges and have experience and expertise in estate planning, wills, and trusts. The scope of these new regulations is broad and the full effect they will have on your family business remains to be seen.

To learn more about the new tax regulations and how you can create the most effective estate plan for your business and your family, contact Kyle Mandeville at kbm@hereforlife.com or 765-742-9066.

Disclaimer: The content of this blog is intended to be general and informational in nature. It is advertising material and is not intended to be, nor is it, legal advice to or for any particular person, case, or circumstance. Each situation is different, and you should consult an attorney if you have any questions about your situation.

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