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Uncertainty Surrounding Valuation Discounts

Richard J. Nelson, CPA Director, Tax Strategies

There have been recent discussions regarding valuation discounts that are applicable to intra-family transfers of interests in closely-held entities. At a recent American Bar Association meeting, Treasury Official Cathy Hughes commented that various Treasury initiatives are likely to be delivered prior to mid-September. It is anticipated that the Internal Revenue Service will issue proposed regulations that will significantly impact valuation discounts.

There is currently a fair amount of uncertainty surrounding the proposed regulations. It is unknown whether the regulations will be prospective or retroactive. It is also not known to what extent the proposed regulations will limit or eliminate valuation discounts (i.e. minority discounts, lack of liquidity, and lack of marketability).

At a minimum, it is speculated that minority discounts and lack of marketability discounts as they relate to family limited partnerships will be targeted. However, the possibility that the proposed regulations will also affect the valuation of active business entities cannot be ruled out.

With the likelihood that the window of opportunity for using these discounts may be closing, it would seem prudent for those who intend to utilize favorable valuation discounts to transfer assets to act before the proposed regulations are published.

Contact Kreischer Miller's Tax Strategies group if you have any questions or would like to discuss how valuation discounts may be applicable to your gift and estate planning needs. 

Information contained in this alert should not be construed as the rendering of specific accounting, tax, or other advice. Material may become outdated and anyone using this should research and update to ensure accuracy. In no event will the publisher be liable for any damages, direct, indirect, or consequential, claimed to result from use of the material contained in this alert. Readers are encouraged to consult with their advisors before making any decisions.

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Richard J. Nelson, CPA

Richard J. Nelson, CPA

Director, Tax Strategies

Business Tax Specialist, Individual Tax Specialist, Estates, Trusts, & Gifts Specialist, International Tax Specialist

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