Private Business Counsel

On August 2nd, the Treasury issued proposed regulations that seek to eliminate the use of several strategies to reduce estate, gift, and generation-skipping tax (“GST”). Specifically, if the new rules are finalized, taxpayers will generally no longer be able to take certain types of voting rights or liquidation rights into consideration when valuing a closely-held business for estate tax, gift tax and GST purposes. For the reasons outlined below, it will generally make sense for taxpayers to act promptly before the rules are finalized.

Under the proposed regulations, the IRS intends to disregard restrictions on a shareholder’s or partner’s right to liquidate an interest in the business if the restriction lapses after a transfer. The rules are highly controversial. The rules would raise estate, gift, and GST taxes by making taxpayers declare a much higher value for their business than they would declare under present law.

The key takeaway message for taxpayers is to act now to complete affected transactions before the end of the year when the rules may be finalized.

To view the proposed regulations, please click here.