Treasury Withdraws Rule on Family-owned Business Valuations | NACS – Media – NACS Daily
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Treasury Withdraws Rule on Family-owned Business Valuations

Obama-era rule would have cost family businesses more money in taxes.
October 5, 2017

​WASHINGTON – Last year, the Obama administration proposed changes to what is known as section 2704 of the Internal Revenue code. The proposed rules impact how much a minority stake in a family owned business is valued at for purposes of the estate or gift tax rules. Currently the IRS recognizes that due to lack of controlling interest a minority share is not necessarily equal in value—in real terms—to a majority share. Therefore, they’ve been giving a “valuation discount” for these tax purposes.  

For example, if you own 15% of a family-owned company and want to pass that share to a child, the IRS would likely value that share at something less than 15% of the total value of the company based on number of possible e factors. Your family would only owe the applicable estate or gift tax amount on that discounted valuation.  The Obama administration’s proposed rule would have essentially ended this practice costing family businesses more money in taxes. 

The proposed rule was widely panned in the business community as being overly burdensome and unworkable. NACS joined with a number of other business associations to send a letter to then Treasury Secretary Jack Lew expressing concerns with the rule, and with the estate tax in general.  Fortunately, Treasury was unable to finalize the rule before the end of the Obama Administration earlier this year. 

Yesterday, Treasury Secretary Mnuchin announced a number of Obama era regulations that will be either withdrawn or partially or fully repealed.   Among those was the proposed Section 2704 regulations.  This is a significant win, primarily for small family owned businesses. A formal withdrawl statement is expected in the near future.