| Sep 21, 2016
Recently, the Internal Revenue Service proposed new estate tax regulations that would make transferring interests in family-owned businesses more difficult and costly than under current guidelines.
Under current law: Because of the estate and gift tax, many family-owned, closely held business owners are challenged in how they can pass on their business interests to their heirs. If a business owner waits to transfer his/her business at death, the business interest is subject to the estate tax at full fair-market value, less the exemption amount.
A popular technique is to gift small ownership pieces over time, such as 10 percent of a business in one year. That interest is a “minority interest.” The value for tax purposes is also discounted relative to fair-market value because control remains with the older generation.
With multiple transfers over time, the entire business can be “gifted” at a minority interest discount, and the total amount subject to tax is substantially less than if the entire interest were taxed at death at fair-market value.
IRS proposal: The Section 2704 regulations would eliminate the discount applied to these “minority” gift transfers for closely held, family-owned businesses. This is causing a significant amount of concern for family-owned businesses ...