The IRS recently released proposed regulations which would close tax loopholes that some wealthy taxpayers have taken advantage of to minimize the value of certain assets subject to estate and gift taxes, or transfer taxes.  If finalized, the regulations would significantly limit the effectiveness of certain tax saving vehicles for reducing the taxable value of transferred interests. These changes would apply to family-controlled corporations, partnerships, and limited liability companies.

Transfer taxes are those taxes incurred when assets are being transferred from one person to another either through gifting, during the transferor’s lifetime, or by inheritance, upon their death. Transfer taxes often come into play when interests in a closely held family business are transferred to relatives. Currently, transfers in excess of $5.45 million for individuals or $10.9 million for married couples filing jointly (or their estates) are subject to the transfer tax.

As it stands today, taxpayers can obtain significant discounts for lack of control and marketability. These discounts can help keep the value of taxpayers’ estates within the lifetime gift and estate tax exemption. The proposed regulations, however, would dramatically limit the availability of discounts when transferred interests in family businesses are valued for tax purposes.

A public hearing on the proposed regulations has been scheduled for December 1, 2016, and would not take effect until at least 30 days after the regulations have been finalized. Therefore, those considering taking advantage of the current tax provisions before they potentially change are encouraged to do so before the end of 2016.

If you have any questions, please contact your Untracht Early advisor, and watch for our updates on this topic later this year.

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