Client Alerts

Discounting Under Attack By IRS

Client Alerts | August 31, 2016 | Estate Planning and Administration

On August 2, 2016, the IRS issued proposed regulations for Section 2704 of the Internal Revenue Code, which would substantially impact the ability of taxpayers to discount the value of certain assets in order to reduce gift and estate taxes. The regulations specifically target the use of Family Limited Partnerships (FLPs) and Family Limited Liability Companies (FLLCs) as estate planning techniques to reduce the value of asset transfers to family members. Discounts are often found to exceed 20%, which can result in substantial tax savings.

It is unclear when and if these regulations will become final or how the proposed regulations may be changed before they become final. The Treasury Department is accepting comments from the public and has scheduled a public hearing for December 1, 2016. The regulations will become effective for transfers made 30 days after the regulations are finalized. Although the regulations may be finalized at any time after the public hearing, it is anticipated that they will be forthcoming sometime during the first half of 2017. In the interim, the ability to create discounts through the use of FLPs/FLLCs will continue. If you might want to make a gift of or a sale of an interest in an existing FLP/FLLC or create an FLP/FLLC for this purpose, we recommend you complete such transactions promptly in order to avoid being subject to the new regulations.