Section 2704 Proposed Valuation Regulations Identified by IRS As Overly Burdensome or Unduly Complex

By Robert Snowden • September 19, 2017 • Tax & Estate

It may come as no surprise to estate planners that the IRS has indicated that the §2704 proposed regulations are under review as overly burdensome and/or unduly complex. As explained in IRS Notice 2017-38, President Trump’s April 21, 2017 Executive Order 13789 directed the Treasury Secretary to reduce regulatory burdens by identifying any regulations issued after 2015 that:

1. impose undue financial burdens on taxpayers;

2. add “undue complexity” to federal tax laws;

3. exceed the IRS’s statutory authority.

The IRS’s initial (or interim) report identifying these regulations was due in June 2017. Notice 2017-38 reflects the interim report. Of the 105 post-2015 proposed, temporary, and final regulations the IRS had issued as of the date of the President’s Executive Order, the IRS found eight that it believes satisfy the criteria in either (1) or (2) above. Few in the estate planning community will be surprised to learn that the proposed §2704 valuation discount regulations are included in this group of eight. These regulations have been controversial since their issuance in August 2016, as evidenced by the thousands of comments the IRS received in response to the Notice of Proposed Rulemaking (REG-163113-02). As described in Notice 2017-38:

Section 2704(b) of the Internal Revenue Code provides that certain non-commercial restrictions on the ability to dispose of or liquidate family-controlled entities should be disregarded in determining the fair market value of an interest in that entity for estate and gift tax purposes. These proposed regulations would create an additional category of restrictions that also would be disregarded in assessing the fair market value of an interest. Commenters expressed concern that the proposed regulations would eliminate or restrict common discounts, such as minority discounts and discounts for lack of marketability, which would result in increased valuations and transfer tax liability that would increase financial burdens. Commenters were also concerned that the proposed regulations would make valuations more difficult and that the proposed narrowing of existing regulatory exceptions was arbitrary and capricious.

The Notice provides us with an opportunity to weigh in on these regulations once again: The IRS requests comments by August 7, 2017 on whether the regulations should be rescinded or modified, and in the latter case, how they should be modified to reduce burdens and complexity.

Executive Order 13789 gives the IRS a deadline of September 18, 2017 to issue a final report recommending “specific actions to mitigate the burden imposed” by the regulations the IRS identified in Notice 2017-38. Practitioners should stay alert for further developments as it seems very doubtful that the proposed regulations will be finalized in their current form (if at all).

From Bloomberg BNA – Jul 8, 2017 / by

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