Proposed IRC 2704 Regulations – Update and a New Wildcard
In my previous article I discussed the Proposed IRC 2704 Regulations. These regulations would dramatically impact estate and gift tax values of transferred assets through the virtual elimination of valuation discounts and other provisions. The comment period for the regulations ended November 2, 2016 and a public hearing on the Proposed Regulations was held December 1, 2016. Almost 10,000 comments were received and nearly 40 speakers representing individual taxpayers, family businesses, attorneys, wealth planners, valuation professionals, and valuation organizations were allotted time to present their thoughts during the public hearing. Over five hours of oral testimony was heard. The transcript of the hearing is available online in the form of a 92 page PDF document.
Nearly every speaker called for the withdrawal of the Proposed Regulations. By the end of the 37 speakers, most concerns had been voiced multiple times. Several items were repeatedly highlighted including:
- Concern for an unreasonable “put right” assumed for every interest holder. These “put rights” do not exist in the business world.
- Questions regarding the “three-year look back period” which would nullify discounts taken for certain transfers that occurred within three years of the transferor’s death, and if the look back period would be applied retroactively.
- Concern for the departure from the established standard of Fair Market Value based upon the hypothetical willing buyer and willing seller as we know it now.
- Concern over the inclusion of “operating companies” in the Proposed Regulations.
Charlotte Chyr, IRS Special Council did speak on two of these items. Charlotte said “It is not our intention for the regulations to contain a put right”. She further told the audience in attendance that the three-year look back rule “will not be retroactive” and would only affect transfers made after the date the final regulations are published. Catherine Hughes, attorney-advisor at the Treasury Department added “We will make it clear that these regulations will not eliminate minority discounts”.
Where does this leave us?
No one is entirely sure (I know I’m not). I believe/hope that the IRS will thoughtfully consider the testimony from the December 1st public hearing as well as the nearly 10,000 comments before finalizing any regulations. However, another wildcard entered this discussion in the form of president-elect Donald Trump’s administration. No one can be certain what will happen to estate taxes now. Trump has mentioned a possible repeal of estate taxes. Will that happen? Once again no one knows. One thing I do know is this, it is a very uncertain time to be making and or acting on estate plans. Keeping any transfers within the $11 million per couple lifetime gift tax exemption may be prudent. Given even the slightest possibility for a gift and estate tax repeal under President Trump, completing any transfer that would be taxed may not be the best financial decision. Time will shed more light on both the IRS’s and the new administration’s position. I continue to encourage you and your estate planning professional to consider the incoming administration’s potential impact and the current status of the Proposed Regulations on your estate plan.
Should you have questions regarding the proposed regulations and their potential impact it may have on a business valuation, contact me, T. Eric Blocher CPA, ASA, CVA at Eblocher@macpas.com.
