Last week, the IRS issued proposed regulations that will significantly reduce valuation discounts for gifts or sales of interests in family limited partnerships, family limited liability companies, and closely-held corporations. It will take years and several court cases to determine the overall effect of the regulations. My best guess is that the regulations will reduce the valuation discount for a typical family limited partnership gift or sale from approximately 35% to approximately 5% or 10%.
These regulations were issued pursuant to a statute that was enacted in 1990. The reason the IRS waited so long to promulgate these regulations is because they preferred for Congress to change the law. They have given up on Congress. The regulations may eventually be ruled to be invalid for exceeding the statutory authority that was given to the IRS to promulgate these regulations. Nevertheless, my advice is to plan as if the proposed regulations will be valid when issued as final regulations. Trust me. You don’t want to pay the legal fees to overturn the validity of IRS regulations.
When will the regulations become final? We do not know for sure. The IRS will hold hearings on the regulations on December 1, 2016. Generally, it takes several weeks or months to finalize the regulations after the public hearings. The IRS will undoubtedly receive vociferous complaints from different groups around the country.
In summary, any planning transactions involving gifts or sales of family limited partnerships, family limited liability companies or closely-held corporations should be completed prior to December 1, 2016.