Proposed Tax-Code Changes Could Limit Valuation Discounts on Future Transfers of Interests in Family Entities
If you’re considering transferring an interest in a partnership, LLC or S Corporation to family members, you may want to act soon.
That’s because on August, 4, 2016, the U.S. Treasury Department (IRS) issued proposed regulations addressing valuation discounts which could have a major negative impact on certain estate planning strategies popular among High-Net-Worth families.
Proposed Changes Include:
Valuation discounts on ownership interests in family-controlled entities being transferred among family members could be significantly reduced or completely eliminated.
The new rules would apply to all family controlled corporations, partnerships, and LLCs, regardless of whether they owned an operating business or an investment account.
When Do the Regulations Go Into Effect?
The proposed regulations will become effective when finalized, but that date is to be determined. The Treasury Department will solicit comments on the proposed regulations for a 90 day period, followed by a public hearing on December 1, 2016. Treasury officials will then consider the comments and at some point issue final regulations. The effective date of the new limitations would then be established, most likely 30 days after issuance of the final regulations. Although it’s hard to predict, the change could become effective in early 2017.
What Should You Do?
Given the uncertainty regarding the specifics of the proposed regulations and the effective date, time is of the essence. Decisions of this importance will take some time for careful analysis, planning and implementation. Therefore, it’s strongly recommended that planning for transfers of interests in Family Limited Partnerships, S-Corporations and other family-controlled entities be completed as soon as possible ahead of the issuance of the proposed regulations. This will ensure you capture what is likely more favorable treatment.
If this circumstance describes your situation, or you have any related questions, please contact your ALL advisor or Nick Nichols, CPA, CVA, at 617-738-5200 x223, nickn@all-cpas.com, to discuss your best options for moving forward.