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IRS Issues Proposed Special Valuation Rules

Written by Warren Averett on September 7, 2016

After years of threatening to crack down on perceived gift and estate tax “loop holes”, the IRS has finally issued its long awaited proposed regulations under Sec. 2704 of the Internal Revenue Code (the so-called “Special Valuation Rules”). First and foremost, the proposed regulations are intended to put an end to the use of family limited partnerships and other family controlled entities as a means of transferring family wealth in a tax efficient manner. Once the proposed regulations are made final, they will profoundly curtail – if not eliminate completely – the practice of taking appropriate discounts for lack of control and lack of marketability when valuing family businesses and/or investment entities for gift and estate tax purposes.

The good news is that the proposed regulations announced on August 2, 2016, do not go into effect until at least 30 days after they become final. The IRS has signaled that it will continue to recognize the validity of valuation discounts in regard to family controlled entities until at least the end of 2016.

Consequently, the window of opportunity for transferring discounted business interests to family members or trusts, either by gift or installment sale, remains open for the time being – but the closing date of that window is fast approaching.

The professionals at Warren Averett LLC are working diligently to sift through every nuance and technicality in the new regulations in order to provide the best planning advice and options for our clients. If you are planning on gifting or transferring interests in a family business for tax or non-tax reasons, please contact your Warren Averett advisor as soon as possible to discuss your options and how these proposed regulations might affect you.

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