Proposed regulations under internal revenue code section 2704_ changes may be coming to transfers of closely held business interests _ the national law review

On August 2, 2016, the Treasury Department issued proposed regulations under the authority provided in Section 2704(b) of the Internal Revenue Code (the “Code”). Gas constant mmhg These proposed regulations were much anticipated by the estate planning community for the assumed consequences they likely would have on the transfer of interests in closely held family businesses. 5 gases emitted from the exhaust pipe While the proposed regulations could become final as early as the beginning of 2017, they are sufficiently controversial enough that it may be years before they become final. J gastroenterol hepatol Nonetheless, regardless of the eventual timing, it is important to know that changes are likely coming to commonly used estate planning techniques. S gashi History

Section 2704 of the Code provides certain rules for valuing intra-family transactions of closely held business interests. Gas 4 less Under the current Section 2704, “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 non-lapsing, over the fair market value of such interests after the lapse.” The major limitations on the effectiveness of Section 2704 of the Code are the exceptions to the general rule. Gas mask tattoo For example, if an individual nearing death relinquished liquidation control of a closely held family business on his death bed, and if the transferred shares had the same rights as prior to the transfer, the rule stated above would not apply. Gas constant for nitrogen Effectively, the individual would receive a discount in his estate on the shares he retained (since he no longer had liquidation control) simply because he transferred a certain amount of shares immediately prior to his death, and the transfer would not be defined as a lapse of a right under Section 2704 of the Code because the transferred shares had retained all of the same rights as before the transfer.

There are many other exceptions in the regulations that allow a well-planned transaction to circumvent application of Section 2704. Gas emoji Appraisers were able to value the interests transferred (or, conversely, the interest retained) at a discount to the going-concern value of the business. Z gas station For decades the IRS has sought to curtail the use of minority discounts when valuing interests in closely held family businesses. Kansas gas service login The IRS largely lost the valuation battles, both in the courts and legislatively. Electricity deregulation wikipedia Left with unfavorable case law and a Congress unwilling to act upon the IRS’s advice to curtail the use of minority discounts in the areas of gift tax, estate tax and generation-skipping transfer tax, the IRS has taken matters into its own hands using an administrative solution to curtail the use of these discounts via these proposed regulations. Gas prices map Three-Year Lookback Period

The proposed regulations would curtail the use of the “death-bed” transfer as described above by adding a three-year lookback period. Electricity generation in california Under the new proposed rule, transfers within three years of death will be disregarded in determining the value of the interest held by a decedent’s estate. Ortega y gasset Accordingly, only de-controlling transfers made more than three years prior to a decedent’s death will be allowed to be considered in determining the value of the decedent’s interest. Npower electricity power cut This new rule effectively limits the “death-bed” transfer scenario and creates a bright-line test. Year 6 electricity Applicable Restrictions

Section 2704 also uses the term “applicable restriction” to define certain aspects of interests in a closely held family business that will be disregarded for purposes of determining the value of such interest for transfer tax purposes. Gas oil mix ratio chart An “applicable restriction” is defined by Section 2704(b)(2) of the Code as a restriction that effectively limits the ability to liquidate the entity. K gas station jobs However, the rule previously only applied if that restriction was more restrictive than the limitations that would apply under state law. Gas upper stomach States revised the applicable statutory restrictions so that state law would provide a default rule concerning liquidation, but allow other liquidation rights to be established in the entity’s operational agreements. Electricity voltage in paris To remedy the issue, the IRS now determines that an applicable restriction only exists if the restriction is mandatory under state law, effectively eliminating the exception to “applicable restriction” for reliance on state law. Cheapest gas in texas Disregarded Restrictions

With the proposed regulations, the IRS has created a whole new classification of restrictions on interests in closely held businesses that will not be considered when valuing that interest. Gas utility bill Case law interpreting Section 2704 of the Code has held that the application of Section 2704 is permissible only when dealing with the liquidation rights of the entity as a whole, as opposed to the liquidation rights that may be present with regard to individual interests in the entity. Electricity usage The proposed new class of “disregarded restrictions” deals with individual interests in the entity. Electricity transmission loss In essence, the regulations constructively create a “put right” for all interests in an entity which, prior to a transfer, was controlled by the family, and after the transfer restrictions on liquidation or transfer could be removed by family members or lapse by their inaction. Gas 2015 This has the practical effect of completely eliminating many discounts because the owner of a minority interest would have a “deemed” right to liquidate the interest at any time. 3 gases that cause global warming Additionally, the IRS would disregard certain other restrictions on the manner and form of the payout on the exercise of a put right. Electricity 1800s This new group of “disregarded restrictions” severely limits many of the techniques currently used for obtaining a minority discount upon the transfer of minority interests in closely held family businesses. Gas bubble in back Conclusion

There are many nuances in the proposed regulations that are not discussed in this advisory. Electricity human body The takeaway is that while the exact timing of any regulatory changes remains uncertain, there is still time to take advantage of existing estate planning techniques with closely held businesses. Gas up asheville If you have any questions about the proposed regulations or existing law under Section 2704 of the Code, you are encouraged to contact your advisor. A gaseous mixture contains Public hearings on the proposed regulations are set for December 1, 2016.

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