In September, the U.S. Department of Treasury (Treasury) proposed changes to regulations that can significantly affect family businesses’ succession plans and make it harder for family owned businesses to transition to the next generation. (Click here) The proposed changes would eliminate valuation discounts used for estimating the value of business assets for determining estate, gift, and generation skipping taxes, to prevent the Internal Revenue Service (IRS) from overvaluing these assets at death. The bottom line is these regulations will force members with family businesses to grapple with complicated and costly estate and gift taxes, in terms of succession planning for the business. It is important for members with family businesses to: 1. Contact your financial advisor to learn more about this proposal and the possible impact it could have on your succession plans; and 2. Actively oppose the proposed regulatory changes.
1. Contact Your Financial Advisor About the Treasury Proposal
Specifically, the regulatory changes proposed by Treasury concern valuation discounts often used by valuation professionals to estimate the value of family business assets for purposes of estate and gift taxes. In succession planning, family business owners often place restrictions on the family business assets to ensure the business remains family owned. Such restrictions, though, reduce the value of the assets. Valuation professionals account for this reduction in value by applying recognized “valuation discounts” in order to determine the asset value for purposes of estate and gift taxes. However, the regulatory changes proposed by Treasury would of eliminate recognition of such valuation discounts by the IRS, requiring family owned assets to be valued as if no restrictions applied, and possibly subjecting such assets to a 40% estate or gift tax rate.
As the circumstances of each ABA member with a family owned business are unique, and as ABA is not offering or qualified to offer advice on tax or financial matters, we strongly urge members with family owned businesses to consult with their respective financial advisor about this regulatory proposal.
2. Actively Oppose the Treasury Proposal
The Treasury proposal is currently at the notice of proposed rulemaking stage, and a docket is now open for the public to submit comments. The comment period closes on Nov. 2, 2016.
ABA, as a member of the Family Business Coalition, is actively opposing this proposal. We will be filing comments in opposition, and encourage our members to do so as well. To assist you in filing comments, the Coalition has established a webpage with an internet link to facilitate comment submission. Here is the link to the Coalition page: http://www.noestatetaxhike.org/. Simply scroll down the webpage, add your contact information and then input your comment in the box (be sure to first delete the guidance included in the box). Once completed, you can preview your comment and then send it (buttons at the bottom of the page). The Coalition website provides helpful tips on what to include in your comment, but to further assist you ABA is providing the following template: Treasury comment.
In addition to ABA’s and the Coalition’s efforts, Congress has also reacted to Treasury’s proposal. In the House of Representatives, Rep. Warren Davidson (Ohio-8) introduced a bill (with 60 co-sponsors) to stop the Treasury proposal; and in the U.S. Senate, Sen. Marco Rubio (Fla.) introduced a companion bill.
You must act now to ensure you fully understand the repercussion of the Treasury proposal, and submit comments in opposition. If you have any questions or need further information, contact ABA’s Government Affairs & Policy team at: ABAinfo@buses.org.