August 12, 2015 Internal Revenue Code (IRC) Section 2704 gives the Treasury broad authorization to
issue regulations that may disregard certain restrictions in determining value of interests
in family businesses. In many cases, operating agreements and stockholder
agreements place restrictions on the ownership interests. These restrictions may give
rise to valuation discounts, therefore reducing the value of the business interest in
family gifting or estate planning.
IRS and Treasury officials have indicated that new regulations may be issued by the
end of 2015 and that these may limit or eliminate consideration of some or all such
restrictions in determining the value of an interest in a family business. This would
therefore impact valuation discounts that may otherwise apply. While this has been on
the IRS agenda for over a decade, it now seems to be getting attention.
The specific nature of the regulations or effective date is not known at this time, but
there is an expectation that regulations will be issued in 2015. If you have a family
business or business interest, you may want to discuss this with your tax and legal