The Treasury Department is proposing radical changes to the regulations of Section 2704 which was made law in 1990. Without explicitly stating so, the Proposed Changes will virtually eliminate valuation discounts (minority and marketability) in the context of family-controlled entities for estate and gift tax purposes. These complex regulations have been described as an assault on family business, and a “back door” for the Administration to increase the Estate Tax without Congressional review. Several in Congress are scrambling to stop these Regulations, and many legal pundits believe they may be unconstitutional. Given that newly elected President Donald Trump and members of Congress will offer a primarily Republican perspective on Capitol Hill, many experts believe the proposed changes will be “swept under the rug” until a new Administration enters the White House as early as 2021.
On December 1, 2016, the Treasury Department held a public hearing on the Proposed Changes to Section 2704. The hearing was the most highly attended Treasury Department hearing in history with 36 individuals speaking, with only one testifying in favor of the changes. Furthermore, most were asking the proposed regulations be entirely withdrawn. Treasury Department of Tax Policy representative, Cathy Hughes, assured hearing attendees that the intentions of the regulation is not to omit all discounts; thus, giving hope that the proposed changes would be removed from future consideration or at the very least, be rewritten. Moreover, Ms. Hughes shared that it is unlikely the rules will be finalized by 2016 year-end.
The “wild card” is that President-Elect Donald Trump had a campaign promise to repeal the federal estate tax. However, most pundits agree (for a variety of reasons) that repeal is unlikely even with a Republican Congress. Despite the slim chance of repeal, most experts will advise against any large transfers that would incur actual gift tax. However, every situation is unique; talk to your tax and legal professional about your estate plans.
We would be delighted to help you or your clients! Please contact us for your business consulting and valuation needs.