IRS Withdraws Valuation Discount Regulations

The IRS issued proposed regulations under Section 2704 in late 2016, which it has officially withdrawn as of October 20, 2017. The proposed regulations could have dramatically affected valuation discounts for intra-family transfers in a variety of entities and created a significant amount of uncertainty in the estate planning field.

Under the proposal, the IRS would have treated certain lapses of liquidation rights as transfers occurring at death. The regulations would have also changed how the value of transferred interest was determined in family-controlled entities and how restrictions and withdrawal would have impacted the value. This would have affected certain transferors of interests in corporations and partnerships.

Because the IRS withdrew the proposed regulations, Section 2704 will continue to treat a lapse of voting or liquidation rights as a transfer equal to the excess of the fair market value of all interests held by the transferor.

To learn more, contact your Beene Garter professional.