IRS to Review Estate Valuation Regulations in Effort to Alleviate Burdens

By Dillon Taylor, Assistant Chief Counsel

On July 7, 2017, the Internal Revenue Service (IRS) issued Notice 2017-38,  that announced the agency would be reviewing whether to rescind or modify proposed regulations (REG-163113-02) relating to the valuation of interests in a closely-held partnership or corporation for estate, gift, and generation-skipping transfer tax purposes.

 Read the IRS notice here.

The proposed regulations under review would eliminate “valuation discounts,” a policy which currently permits certain discounts for minority interests. These discounts are commonly applied to lower the value of transferred interests for gift, estate, and generation-skipping tax purposes.  By eliminating valuation discounts, the proposed regulations would negatively impact succession planning for many small businesses.

Based on small business feedback, on Nov. 1, 2016, the Office of Advocacy submitted a public comment letter in response to the IRS estate valuation proposal.  Advocacy’s comment letter encouraged the IRS to more fully consider the small business impact of the proposed regulations and to weigh less burdensome alternatives to the proposal.

The IRS notice includes several additional deregulatory actions in response to an executive order directing the IRS and the Department of Treasury to review “significant tax regulations” issued on or after Jan. 1, 2016, and instructing the agencies to report the President by Sept. 18, 2017, with specific recommendations aimed at mitigating the burden imposed by regulations they identify.

In total, the IRS notice identifies eight regulations for review and reform:

  • The estate valuation proposed rules.
  • Proposed regulations (REG-129067-15) on the definition of a political subdivision that is eligible to issue tax-exempt bonds for governmental purposes under section 103.
  • Temporary regulations (T.D. 9770) under section 337(d) on transfers of property by C corporations to real estate investment trusts (REITs) and regulated investment companies (RICs).
  • Final regulations (T.D. 9778) regarding IRS summons under section 7602, allowing outside economists, engineers, consultants, or attorneys to receive books, papers, records, or other data summoned by the IRS.
  • Temporary regulations (T.D. 9788) on liabilities recognized as recourse partnership liabilities, and to provide rules for how liabilities are allocated under section 752 solely for purposes of disguised sales under section 707.
  • Final and temporary regulations (T.D. 9790) under section 385 on the treatment of certain interests in corporations as stock or indebtedness.
  • Final regulations (T.D. 9794) under section 987 on income and currency gain or loss with respect to a section 987 qualified business unit.
  • Final regulations (T.D. 9803) under section 367 on the treatment of certain transfers of property to foreign corporations.

Comments on the IRS notice are due Aug. 7, 2017

You can read Advocacy’s regulatory alert here.

Dillon Taylor’s portfolio includes Taxes, Pensions, and Securities.

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