IRS regulations anticipated for release as early as this September may further restrict valuation discounts. The exact scope of the regulations is unknown, but the regulations will likely make it more difficult for taxpayers to discount the value of family business interests.
Valuation discounts in family business interests are often utilized in connection with “estate freezes” that deflect future asset growth from the estate of a senior family member to a younger generation member. Families place restrictions—such as restrictions on the owner’s ability to become a full-fledged voting member or partner of the entity—on interests given to junior family members. Splitting interests and dividing control in this way considerably reduces the value of the transferred interests. The most significant valuation discounts arising from such mechanisms are lack of marketability and lack of control discounts. Thus, when appraisals are done for family business interests with such restrictions placed on them, the transferred interests are valued at significant discounts, and the tax on a transfer may be correspondingly reduced. However, the interests still retain economic benefits for the transferees.
IRS Plans To Further Restrict Family Business Valuation Discounts – Tax – United States