Tag: Discounts

Valuation Discounting Regulations Await Final IRS & Treasury Report

August 31, 2017

A year ago Treasury proposed new regulations to Section 2704 of the Internal Revenue Code that would significantly reduce or eliminate the ability to use valuation discounting in certain transactions where business interests are transferred.  The proposed regulations would mean that the parties to those types of transactions could incur estate or gift tax.  Towards the end of last year, a public hearing on the regulations was held in which many expressed concerns about how these proposed regulations would impact small businesses and the like.  However, at the time the future of the regulations was unknown given the change of administration, 

Earlier this year, the President issued Executive Order 13789 in which the President instructed Treasury to review all “significant tax regulations” and identify those regulations that (a) impose an undue financial burden, (b) add undue complexity to our tax laws, and (c) exceed statutory authority of the IRS.  Treasury issued Notice 2017-38 in which the proposed regulations to Section 2704 were identified as meeting these criteria.  A comment period followed the issuance of the Order and has now closed.  During the comment period, a study was submitted by The S Corporation Association that showed the detrimental impact of such regulations should they be finalized.  A final report is due to the President within the next month that is to suggest possible reforms to the identified regulations ranging from modification to the regulations to a full appeal.  Until the future is certain, valuation discounting remains available.  #valuationdiscounts #2704regulations #businessvaluations #estateplanning #businessplanning @bgnthebgn

The Future of Valuation Discounting…

December 29, 2016

Earlier this month, a long awaited hearing was held on the proposed regulations that would reduce the availability of valuation discounting when transferring closely held business interests.  Close to forty individuals testified at the IRS hearing and all but one individual opposed the proposed regulations.  Among several of the reasons why critics opposed the regulations included the following: (a) the potential for a ‘deemed put right’; (b) the creation of a three-year look back period; (c) the forced use of the ‘investment value’ standard for determining fair market value versus the ‘willing buyer – willing seller’ standard; and (d) the use of family attribution rules that could extend the reach of the proposed regulations.  An attorney-advisor from the Treasury Office of Tax Legislative Council tried to assuage some of the concerns and even commented that it would be surprising if the regulations were finalized given the new administration. 

What does the hearing mean for planning?  It means that planning is still very much up in the air.  For some, there has been a push to complete transactions by the end of year before the regulations are finalized.  For others, any potential transactions are now on hold.  Either way, the issue is not dead, but may be tabled until the next election and individuals and their advisors would be wise to monitor the situation to avoid getting caught without having planned. #valuationdiscounts #2704regulations #businessvaluations #estateplanning #businessplanning @bgnthebgn

2017 Estate and Gift Tax Exemptions

November 3, 2016

money-2The IRS recently announced the estate and gift exemption levels for 2017 and they continue to increase as per legislation passed in January 2013.  The applicable exclusion amount from Federal estate tax will increase to $5.49 million per person allowing a married couple to shelter $10.98 million from Federal estate tax, the rate for which is currently set at 40%.  The lifetime exemption from gift tax remains coupled with the exemption from Federal estate tax, and therefore, this exemption will also increase to $5.49 million per person.  The annual gift exclusion amount will remain at $14,000 per person.  Virginia continues to not impose a state level estate tax.  Maryland’s exemption from estate tax will increase to $3 million while the District of Columbia’s exemption will remain at $1 million until certain revenue surplus targets are met, which may not be until 2018, at which point the exemption will increase to $2 million.  As a reminder, proposed regulations issued in August will significantly reduce the availability of valuation discounting on certain transfers of interests held in closely held or family owned businesses, and therefore, taking advantage of 2016 exemption levels is critical for some individuals, business owners and families.

For seniors and those with disabilities, a cost-of-living adjustment (COLA) for Social Security and Social Security Income (“SSI”) will increase monthly benefits by 0.3%.  In addition, the cap on the amount of earnings subject to payroll tax will increase to $127,200.  Finally, the tax brackets, standard deductions, Pease and PEP limitations, kiddie tax and other credit and deduction levels for 2017 were announced. #estateplanning #estatetax #gifttax #annualgift #exemptionlimits #COLA2017 @bgnthebgn  

ALERT – Valuation Discounting Impacted By New Regulations

August 4, 2016

Estate planners and valuation experts have been advising clients for the last year that the IRS and Treasury would be issuing new regulations that would make it harder to transfer business interests without incurring estate or gift tax.   The proposed regulations are now here and will reduce the availability of discounting for transfers of business interests that are subject to certain restrictions (e.g., restrictions on marketability).  The proposed regulations will go through a 90 day public comment period and a public hearing is scheduled for December 1, 2016.  The proposed regulations will be effective as to transfers that occur on or after the date the regulations become final, and in certain circumstances, as to transfers occurring 30 or more days after the regulations become final.  Thus, those who hold interests in closely held businesses should contact their professional advisors to determine whether they need to take action before the regulations are finalized.  #valuationdiscounts #2704regulations #businessvaluations #estateplanning #businessplanning @bgnthebgn