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IRS Proposed Changes in Estate Tax Regulations

Thursday, September 29, 2016   (0 Comments)
Posted by: Annette Ferri
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IRS Proposed Changes in Estate Tax Regulations

On August 2, 2016, the U.S. Department of Treasury proposed changes to federal estate tax regulations that will have a significant negative impact on small and medium businesses, including wooden pallet and container manufacturers. The proposed regulatory changes under Code Section 2704 potentially prohibit the use of any type of discounts that are customarily applied in valuing assets and property for both tax and non-tax purposes. These include discounts for both minority interests and lack of marketability. The proposed changes will add considerable complexity to the process of valuing and transferring closely-held interests, adding to the costs and burdens for family business owners.

Background: Since 1958, the measure of value for estate and gift tax purposes has been closely aligned with the value used for non-tax purposes; that is, the price at which interests in the company would be sold to an unrelated third party. Traditionally, in valuing interests in a family business, an appraiser will first value the entire business on a controlling, marketable basis, and then adjust this value with discounts for:

  • Lack of control/ minority interest – Owners who do not have a majority of the interests in a business generally lack the authority to influence how the business is run.
  • Lack of marketability – All things being equal, investors have a preference for assets that can be easily traded, such as stocks of publicly traded companies, and will typically pay less for investments that are not very liquid. Interests in privately-held companies are typically illiquid relative to these publicly traded investments.

Implementing the changes as proposed would lead to payment of estate tax on such interests using values that far exceed the values that would be used if the interests were actually sold. In effect, a tax on value that does not exist. The proposed regulations do not become effective until December 1.

The National Wooden Pallet and Container Association has signed-on to a coalition letter with over 50 pages of signatories in opposition to the move, and met on Capitol Hill as part of coalition efforts opposing the overreach by the IRS


Patrick Atagi
NWPCA Vice President, Advocacy & External Affairs 
Phone: 703-519-6104

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