Treasury and IRS formally withdraw controversial valuation regulations

On Oct. 20, the government formally withdrew proposed regulations (REG-163113-02) concerning the estate, gift and generation-skipping transfer (GST) tax treatment of lapses of liquidation rights in family-controlled entities (FCEs), as well as the valuation of interests in family-controlled corporations and partnerships for estate, gift, and GST tax purposes.

The regulations, which were originally proposed in 2016, were intended to curb potentially abusive valuation discounts claimed by taxpayers when interests in FCEs, like family limited partnerships (FLPs), are transferred. However, the regulations were criticized as being overly burdensome on taxpayers. When an FLP interest is passed to a family member, the value used to calculate the transfer tax implications may be discounted significantly if the underlying assets are subject to restrictions for things like marketability and control. The proposed regulations would have essentially ended the ability of taxpayers to apply such discounts. The withdrawal of the proposed regulations was not unexpected. The regulations were proposed in late 2016 as one Treasury’s last regulatory acts under the Obama administration. In July 2017, Treasury identified the proposed regulations as being potentially unduly burdensome on taxpayers, and just weeks ago, Treasury, in a report to the President, stated it would withdraw the proposed regulations. Now that the regulations are withdrawn, it seems unlikely that Treasury will propose any new regulations in this area under the Trump administration.

Mike Ban
National Managing Principal, Private Wealth Services
New York — Manhattan Office
T +1 212 542 9560

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