Lustig Law Firm Estate Planning Blog

Tuesday, August 4, 2015

Are Family Limited Partnership Discounts In Danger?

IRS attorney Cathy Hughes, at a recent ABA Taxation Section Meeting in May, signaled the Service’s intent to release new proposed regulations under IRC §2704(b)(4) by mid-September. Those proposed regulations would likely include new “disregarded restrictions” built into family entity strategies that would, in turn, reduce or eliminate the use of valuation discounts in those entities.

Although it is not clear what the regulations will ultimately say, it does seem likely that (based on the President's budget proposals from 2010 - 2013) the proposed regulations would limit the use of lack of control (e.g. minority) and lack of marketability discounts for interests in family-owned entities, especially when the entity does not itself operate an active business—for example, a typical family limited partnership. In addition, there is further speculation that existing family entities would not be “grandfathered” under the proposed regulations. Only gift or sale transactions that are completed before the effective date of the proposed regulations would be grandfathered.

See KPMG, Pending Proposed Regulations May Limit Valuation Discounts on Interests in Family Entities, June 23, 2015. See also Jonathan G. Blattmachr, Anticipating New Regulations Under IRC Section 2704, June 4, 2015.

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