Getting A Valuation Adjustment For Certain Family Owned Businesses Has Been A Critical Planning Strategy In Avoiding An Estate Tax After Someone’s Death
Well…the IRS is proposing to eliminate that strategy.
Just yesterday, in the Federal Register, the IRS proposed new regulations that would all but eliminate valuation adjustments. This would apply to business entities, real estate investment, and entities that own securities. The proposal will drastically increase the estate tax on many families who own small businesses.
The IRS Summarized The Background:
Section 2704 of the Internal Revenue Code provides special valuation rules for purposes of subtitle B (relating to estate, gift, and GST taxes) for valuing intra-family transfers of interests in corporations and partnerships subject to lapsing voting or liquidation rights and restrictions on liquidation. Lapses of voting or liquidation rights are treated as a transfer of the excess of the fair market value of all interests held by the transferor, determined as if the voting or liquidation rights were nonlapsing, over the fair market value of such interests after the lapse. Certain restrictions on liquidation are disregarded in determining the fair market value of the transferred interest.
What the heck does that mean in plain English? Well, it means that we have a few months left to implement this strategy if you haven’t already! So, right now, a business owner with a business “book value” of $10,000,000 could leave that to his children using currently available strategies and his family would pay $0 in estate tax. Under the new proposed regulations, his children would pay $1,820,000 in TAXES!
So, hurry up and get this done. Call our office to schedule a Free Planning Session with us today.