Treasury Recommends Withdrawing Regulations that Would Harm Family Businesses

Good news! The Treasury Department has formally recommended withdrawing the Section 2704 regulations on family business valuation. PMAA has pushed back against the proposed regulations as they would have increased the death tax burden on family businesses.

Earlier this year, President Trump issued Executive Order 13789 (Identifying and Reducing Tax Regulatory Burdens) which was designed to reduce burdensome tax regulations. In August, PMAA along with other members of the Family Business Estate Tax Coalition (FBETC) submitted a letter to the Internal Revenue Service (IRS) regarding implementation of President Trump’s Executive Order. The Executive Order calls for the Secretary of the Treasury to review all significant tax regulations issued on or after January 1, 2016 that “impose an undue financial burden on United States taxpayers; add undue complexity to the Federal tax laws; or exceed the statutory authority of the IRS.”

In response to the Executive Order, the Treasury Department identified eight sets of regulations for review and asked the public to comment on how these regulations should be fixed. Pursuant to the requests of PMAA and the Small Business Legislative Council (SBLC), IRS identified the proposed regulations under Section 2704(b) of the Internal Revenue Code for consideration. Section 2704(b) would minimize the number of estates that would be eligible for valuation discounts and avoidance of double taxation via the estate, gift or transfer taxes. Treasury's final report issued in accordance with the President's Executive Order 13789 lists Sec 2704 under proposed regulations to be withdrawn entirely.

After reviewing these comments, Treasury and the IRS now believe that the proposed regulations’ approach to the problem of artificial valuation discounts is unworkable. In particular, they agree with commenters that taxpayers, their advisors, the IRS, and the courts would not, as a practical matter, be able to determine the value of an entity interest based on the fanciful assumption of a world where no legal authority exists.

In light of these concerns, Treasury and the IRS have decided that these proposed regulations should be withdrawn in their entirety and will publish a withdrawal of the proposed regulations shortly in the Federal Register.

PMAA has opposed the regulations since their introduction because it is fundamentally unfair to single out family-owned small businesses for worse treatment under the tax laws than non-family-owned businesses. PMAA has maintained that the proposed regulations should simply be withdrawn and not replaced.