Proposed Regulations Limiting Discounts on Family Gifts Targeted for Reform

By:  Amanda Wilson

Last summer, we discussed the IRS’s issuance of new Proposed Regulations under Section 2704 of the Internal Revenue Code, which regulations would severely impact discounts on gifts made to family members.  (Our prior discussion can be found here.)   Earlier this year, the Trump Administration issued an executive order instructing the Treasury Department to review all significant tax regulations issued after December 31, 2015 and identify any regulations that impose an undue burden on taxpayers.  The Treasury Department and IRS have completed this review, and have identified eight burdensome regulations that should be reformed.  The good news for taxpayers is that the Proposed Regulations under Section 2704 are on this list. read more

IRS Issues Proposed Regulations That Will Severely Impact Discounts for Gifting to Family

By Julie Frey

Private_Wealth-webDiscounts for gifts of closely held business interests to family members may be significantly restricted soon.  On August 2, 2016, the Internal Revenue Service issued new Proposed Regulations under Section 2704 of the Internal Revenue Code that would eliminate discounts if the transferor and/or members of the family control the entity immediately before the transfer. Moreover, any restrictions in the business entity on transferability will be disregarded unless federal or state law requires such restriction. Thus, a buy-sell agreement or restriction in an operating agreement as to liquidation or redemption of an owner’s interest will be disregarded in terms of valuing the interest unless such restriction is mandated by law. In the past, if the entity was properly structured, one could take a discount for lack of control and lack of marketability for a gift of a limited partnership interest. For example, a gift of a limited partnership interest might be discounted from $1,000,000 to $700,000 for gift tax purposes based on such discounts, which in essence meant that you could transfer more value to your family members because of the discounts.  Under the proposed regulations, these discounts will not be available and the interest transferred to a family member will likely be valued at full value. read more

IRS Proposes Regulations to Limit Strategy to Avoid Estate Tax

By Jason Palmisano

The IRS has issued a notice of proposed regulations to limit the valuation discounts individuals have been afforded when they engage in certain types of intra-family transfers involving their family owned corporation or family partnership.  Under the proposed regulations, the valuation discount — sometimes up to 40% — that is given for the transfer of assets that have limited liquidation rights would not apply for “deathbed” transactions, only to transfers that occur more than three years before the transferor’s death.  While the proposed regulations are very specific, the restriction on the valuation approach could apply to the inheritance of most family businesses.  You can read more about the proposed rules the IRS wants to implement in the Wall Street Journal. read more

Plan Ahead to Avoid or Minimize US Estate Tax

By: Jason Palmisano If you are not a US resident or a US citizen and are considering buying assets in the US, there are ways to avoid or minimize US estate tax on those assets. Here are some things to consider:

  • The US federal estate tax applies to US citizens, individuals considered to be US “residents” subject to US estate tax, and possibly to individuals who are not a US citizen or a US resident.
  • An individual will be considered a US resident subject to US estate tax if the individual is considered domiciled in the US at the time of death, which will be determined based on whether the individual has or had a physical presence in the US and the individual’s intent to remain in the US.
  • Please note, the US income tax rules for determining residency are different from the US estate tax rules for determining residency.
  • If an individual is not a US citizen or deemed to be a US resident for US estate tax purposes, then that individual may still be subject to US estate tax if the individual owns assets that are determined to be situated in the US at the time of the individuals death.
  • Such assets include US real estate, stocks in US corporations, and tangible personal property.

For tips on how to avoid or minimize US estate tax, click on the video below:

Jason PJason Palmisano offers advice about estate planning for non-U.S. citizens

If you have any questions about US estate tax, please contact Jason Palmisano, Julie Frey  or any member of the Estate Planning Group.

America’s Un-American Resistance to the Estate Tax

By Jason Palmisano

Stephen Martin wrote an interesting article in The Atlantic magazine arguing for bolstering the U.S. federal estate tax as it “is a policy that actually aligns neatly with the U.S.’s notion of fairness.”  I take issue with some of his arguments but he brings up many interesting items for discussion; especially in this election year.  Mr. Martin is a former managing director at J.P. Morgan Private Bank and is currently a writer based in Houston.  You can read the article here. read more