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While the withdraw has created a sigh of relief for many business owners, preparation is key to making informed decisions when facing a volatile planning environment. 

Family outside at a table with woman serving bread.

On October 2, 2017, the Department of the Treasury withdrew the proposed §2704 regulations previously announced on August 2, 2016. 

If passed as written, the proposed regulations would have placed an undue burden on business owners transitioning their businesses via gift or sale to family members.  These regulations would have significantly changed the way family-controlled businesses are valued for estate and gift tax purposes by effectively eliminating the application of minority and marketability discounts for interests in these entities transferred to family members, even if the transfer occurred via a sale. 

After submitting written comments to the Department of Treasury, Plante Moran followed up with a visit to Washington D.C. in December.  Dawn Jinsky, Plante Moran Partner and Wealth Transfer practice leader, was one of 37 commentators who testified in front of a highly influential U.S. Treasury panel. 

Speaking from her extensive experience at Plante Moran working with family-owned businesses, Dawn described the detrimental effect the proposed regulations may have on families attempting to transfer their businesses to the next generation.  In her testimony, Dawn asserted that by redefining fair market value, the proposed regulations would require family members to pay a higher price for closely held stock than nonfamily members.  Dawn emphasized that transitioning a business is challenging enough without introducing complications created when the price of closely held business stock is based on the relationship between the buyer and the seller.

The submitted public comments and testimony from Plante Moran and others led the Treasury to conclude, “that the proposed regulations’ approach to the problem of artificial valuation discounts is unworkable.”

The recent withdrawal of the proposed regulations has created a sigh of relief for many business owners.  Most recently, the topic of estate tax repeal and lower tax rates is causing people to wonder what they should (or shouldn’t) be doing right now. If there is one observation we continue to share, preparation is key to making informed decisions when facing a volatile planning environment.  Those who have taken the time to construct a balance sheet and understand their goals for retirement, for transitioning their businesses, for their families, and for the charities they support are better positioned to determine the best course of action in the event of any legislative change. 

If you are considering transferring interests in a closely held entity or would like to discuss ideas and best practices around how to plan wealth transfers, please reach out to a member of Plante Moran’s Wealth Transfer team to assist you.