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

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in on these regulations once again: The IRS requests comments by August 7, 2017 on whether the regulations should be rescinded or modified, and in the latter case, how they should be modified to reduce burdens and complexity.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

Rob Snowden Interviewed by The Value Examiner

In the September/October 2016 issue of The Value Examiner, Rob Snowden of South Park Advisors was interviewed about his experience as a sole practitioner in the business valuation industry. In the article, Rob discusses some of the trials and tribulations he faced during the first year, as well as the importance of establishing trust and competence with clients – “It’s about more than just providing a business appraisal.”

The complete article can be accessed at the follow link: Rob Snowden Interview.


South Park Advisors is an independent business valuation firm dedicated to serving the needs of closely held businesses. We believe there’s no one-size-fits all approach to valuation, and every process is uniquely based on each business, sector and industry. We’ll approach your appraisal with confidence, competency, and industry-specific knowledge to ensure a credible and well-reasoned outcome.

Judge Laro offers takeaways on litigating tax valuation cases

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A highlight at the 2015 AICPA forensic and valuation services conference in Las Vegas was “Valuation in Tax,” a panel in which several leading minds on taxation discussed hot topics in the valuation area. The star of the illustrious gathering was Judge David Laro. He offered thoughts on a range of issues, including tax affecting, USPAP, standard of value, discount for lack of marketability, concurrent witness testimony (aka “hot tubbing”), and more.

For example, in terms of the standard of value, Judge Laro reminded experts that one thing they can do to ensure their testimony is admissible is using the correct standard of value. It’s the fair market value, not the market value. In other words, the focus is on a hypothetical willing buyer and a hypothetical willing seller that engage in an arm’s-length transaction; the focus is not on actual sales data, he cautions. If an expert applies the wrong standard of value, he or she can be sure the Tax Court will disregard the valuation. Today’s Tax Court judges are very sophisticated when it comes to valuation, Judge Laro added.

To read more about his hot topics discussion, click here.

Business Appraisal Red Flags

On October 19, 2015, Theresa Melchiorre, chief counsel for the IRS, gave a presentation at the American Society of Appraisers’ 2015 BV Conference, entitled “Appraisers and their Responsibilities : An IRS Perspective.”  As part of the presentation, she discussed seven common reasons for auditing a business appraisal associated with a gift tax or estate tax return.

  1. The appraisal does not address the applicable Code and Regulations.
  2. The appraisal does not conform to generally accepted standards and procedures.
  3. The appraisal relies on unconventional analysis (i.e., not widely used or accepted).
  4. The analysis is not thorough, explained or consistent with the valuation conclusion.
  5. The conclusions are based on unsupported opinion and not facts.
  6. The assumptions made in the appraisal are not reasonable and supported by evidence.
  7. The appraisal is poorly written. It is not easy to follow, does not answer potential questions or does not lead to a reasonably supported value.

For many estate and gift tax attorneys (and their financial advisors), most of the following “red flags” will not be cause for surprise but should underscore the importance of issues that require continued professional oversight and appraisal expertise. Tax rules, regulations and compliance are constantly evolving. With South Park Advisors, you can be assured you’ll receive a professional business valuation that can withstand scrutiny and review.

NCBA 36th Annual Estate Planning Program

Stop by for a visit!

South Park Advisors is pleased to announce its participation in the North Carolina Bar Association’s 36th Annual Estate Planning and Fiduciary Law Program to be held at the Kiawah Island Golf Resort from July 30 to August 1.

Please stop by for a visit and let us provide our perspective on the latest trends affecting business valuation in the estate planning arena. 

Anticipating New Regs Under IRC §2704

Definition of applicable restriction for valuation purposes may be expanded.

Wealth has just released an article written by Jonathan and Matthew Blattmachr that discusses the impact of anticipated regulatory changes to IRC Section 2704(b). To combat end runs around this section of the Code, legislation has been proposed that would create an additional category of restrictions (disregarded restrictions) that would be ignored in valuing an interests in a family-controlled entity transferred to a member of the family if, after the transfer, the restriction will lapse or may be removed by the transferor and/or transferor’s family. For more information, you can view the complete article at: