IRS appears to have given up on legislative reform on transferring stakes in family business and sets up its own regulations.
Bloomberg recently published an article covering restrictions proposed by the IRS on the transfer of ownership within a family business in “IRS PROPOSES NEW REGULATIONS FOR §2704 — A BETTER MOUSE TRAP?”
Because many family-owned businesses place restrictions on who and when shares can be sold, tax benefits have been available because it is sometimes difficult to find outside buyers.
It is assumed that any purchaser would want a discount. This could be taken into account when transferring between family members as well. For gift and estate tax purposes the shares can be valued at less than market value.
This is known as a “discounted” value.
For the last decade the IRS has wanted to do away with this discounted value or to at least lower the discount amount. Previously, the agency has asked Congress to act, but now the agency is proposing new regulations to take care of it without congressional action.
Experts are divided about the effectiveness of the new regulations.
What the IRS has proposed is extraordinarily complex, even for an agency known for its complex regulations. The courts will also eventually have to decide whether the regulations are appropriate.
An estate planning attorney can guide you on the rules and regulations involved with selling shares in a family business.
Reference: Bloomberg (Aug. 19, 2016) “IRS PROPOSES NEW REGULATIONS FOR §2704 — A BETTER MOUSE TRAP?”