Treasury Seeks to Limit Certain Valuation Discounts for Family-Controlled Entities: Proposed 2704 Regulations

Proposed regulations under section 2704 of the Internal Revenue Code were released earlier this month in regard to valuation of interests in many family-controlled entities for estate, gift, and generation-skipping transfer tax purposes. The primary focus of the proposed regulations is treating the lapse of voting or liquidation rights as an additional transfer and limiting certain restrictions in determining the fair market value of a transferred interest.

The proposed regulations are looking to limit the amount of certain valuation discounts (minority interests) for any type of family limited partnership or other family business transfer, where the family will retain control before and after the gift or bequest occurs.   This could mean increased estate taxes on the death of owners of family businesses and/or entities.

If the final regulations are similar to the proposed regulations, then taxpayers will have lost an estate planning technique and the tax cost of transferring interests in family-owned entities will increase.  

There will be a 90-day comment period.  It is expected that there will be significant comments to the proposed regulations by professional organizations as well as at the public hearing scheduled for Dec. 1, 2016.  Due to these proposed regulations, it is likely that there will be challenges to the Treasury’s authority to adopt them in their present form.  At this point, it is assumed that final regulations could come out by early 2017.

Time to Plan Ahead

As indicated earlier, there most likely will be legal challenges to the validity of the regulations, however, the best time for planning and action is now.  If anyone is considering the transfer of interests in family-owned entities, one should consider making the transfers as soon as possible and taking action before year-end.

Please contact Warady & Davis LLP at (847) 267-9600  if you have any questions about the proposed Treasury regulations, valuation services or estate & succession planning for you and your business. Visit for more information on ways that we can help.


Legal Notice: The materials communicated in this transmission are for informational purposes only and not for the purpose of providing accounting, legal or investment advice. You should contact your accountant or advisor to obtain advice with respect to any particular issue or problem. Use of and access to this Web site or any of the e-mail links contained within the site do not create an accountant-client relationship between Warady & Davis and the user or browser. You should not act upon any such information without first seeking qualified professional counsel on your specific matter. Any accounting, business or tax advice contained in this communication is not a substitute for a formal opinion, nor is it sufficient to avoid tax-related penalties. If desired, Warady & Davis would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services. ©2017