Regulatory Updates to Estate, Gift, and Generation-Skipping Transfer Taxes

Palmer Schoening, Chairman of the Family Business Coalition and President of Schoening Strategies, is providing tED magazine another update on key issues at impact NAED members in Washington D.C. Today he discusses withdrawal of the proposed regulations under Section 2704 on Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes (REG-16311302; 81 F.R. 51413).

There are two new updates on that front:

  1. The House FY18 appropriation bill contains a policy rider which defunds the implementation of the proposed regulations. The rider is under Sec. 115 of Financial Services and General Government appropriation. It would prevent the IRS from finalizing the regulations as written, or any similar regulations that could be proposed under 2704.
  2. Last Friday, the IRS issued Notice 2017-38, an interim report in accordance with President Trump’s Executive Order 13789 which directs the Treasury Secretary to identify any regulations issued after 2015 that:
    • Impose undue financial burdens on taxpayers;
    • Add undue complexity to federal tax laws;
    • Exceed the IRS’s statutory authority.

Of 105 total regulations considered, eight were flagged in the Treasury’s interim report as significant and meeting at least two of the three conditions above. Listed fourth in the interim report is the Section 2704 regulations.

According to the report:

Section 2704(b) of the Internal Revenue Code provides that certain non-commercial restrictions on the ability to dispose of or liquidate family-controlled entities should be disregarded in determining the fair market value of an interest in that entity for estate and gift tax purposes. These proposed regulations would create an additional category of restrictions that also would be disregarded in assessing the fair market value of an interest. Commenters expressed concern that the proposed regulations would eliminate or restrict common discounts, such as minority discounts and discounts for lack of marketability, which would result in increased valuations and transfer tax liability that would increase financial burdens. Commenters were also concerned that the proposed regulations would make valuations more difficult and that the proposed narrowing of existing regulatory exceptions was arbitrary and capricious.

IRS Notice 2017-38 also provides us two new dates:

  1. August 7, 2017: The IRS is accepting new comments on their interim report until this date. Today, FBC submitted this short letter, reiterating our support for withdrawal of the regs. We’re urging coalition partners to submit their comments at: with Notice 2017-38 in the subject line.
  2. September 18, 2017: The IRS will issue their final recommendations on “specific actions to mitigate the burden imposed by regulations identified in the interim report.” The only solution we are pushing is complete withdrawal. As I told Investment News at the beginning of the year, we need to pull these regulations out by the roots!

According to President Obama’s FY2013 budget (page 203 “modify rules on valuation discounts”) implementation of these regulations would cost small businesses $18 billion over a ten year period, not including additional compliance costs. That is money that will now likely stay in the pockets of family owned businesses so they can expand, pay workers more, and create new jobs.


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