10A — September 11 - 24, 2015 — Financial Digest — M id A tlantic

Real Estate Journal


F inancial D igest

aluation discounts can play an important role in tax planning for the By Michael A. Backer & Nita S. Vyas, Greenbaum Rowe Smith & Davis Changes in IRS regulations may impact use of valuation discounts in estate planning V ties such as limited liability companies or family limited partnerships to a spouse and/ Cathy Hughes, an official with the U.S. Treasury’s Of- fice of Tax Policy, commented tion’s fall meeting, scheduled for September 17-19, 2015. Hughes further noted that

Section 2704 was enacted in 1990 as part of Chapter 14 of the IRC. Its purpose was to prevent the reduc- tion of taxes through “estate freeze” techniques that were designed to reduce the value of a taxpayer’s estate, and to discount the value of property transferred to beneficiaries for estate and gift tax pur- poses without reducing the economic benefit passing to those beneficiaries. To address the concern that taxpayers were imposing re- strictions on transferred prop- erty that had the effect of ar- tificially reducing its value for estate and gift tax purposes, Section 2704(b) provides that certain “applicable restric- tions” that would normally justify discounts in the value of transferred property will be ignored in valuing interests in family-controlled entities if those interests are transferred to (or for the benefit of) family members. Valuation discounts on in- ter-family transfers have been targeted for years. Since 2010, the Obama Administration’s budget proposals have con- tained proposals that would restrict or eliminate valua- tion discounts on transfers of interests in family-controlled entities. Tax planners anticipate that IRS regulations to limit valuation discounts are on the way. Although the effective date of the new regulations is uncertain, it seems likely that only those transfers completed prior to the effective date will not be subject to the new rules. Accordingly, families with taxable estates for U.S. estate tax purposes should strongly consider establishing and thus transferring interests in controlled entities to fam- ily members soon, in order to avail themselves of the favor- able provisions which are still available under current law. Our Tax, Trusts & Estates Department provides a full spectrum of services to indi- viduals and families, busi- nesses, corporate trust depart- ments, executives and other professionals, and non-profit or tax exempt entities resid- ing or doing business in New Jersey. Michael A. Backer is De- partment Chair and Nita S. Vyas is Counsel in the Department at Greenbaum Rowe Smith & Davis. n

or descendants. There is now a concern that the IRS may soon issue reg- ulations that wi l l sharp l y curtail the abil- ity of taxpayers to use valuation discounts in their estate planning. At an American Bar As- sociation Section of Taxation meeting earlier this year, Nita Vyas

estate of a high net worth indi- vidual. Many of our clients have used valuation discounts for lack of control (also known as minority dis-

“Our Tax, Trusts & Estates Department provides a full spectrum of services to individuals and families, businesses, corporate trust departments, executives and other professionals.”

on various proposed regula- tions and anticipated regu- lations. She indicated that proposed regulations for Sec- tion 2704(b) of the Internal Revenue Code (IRC) could be released before the ABA Sec-

tax professionals could look to the Obama Administra- tion’s prior budget propos- als on valuation discounts for insight about what the proposed regulations might provide.

Michael Backer

counts), and for lack of mar- ketability, to save significant gift and estate taxes when transferring minority inter- ests in family controlled enti-

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