Internal Revenue Service Expected to Restrict Discounts on Transfers of Closely-Held Business Interests

By: David J. DelFiandra, Esq. and Stefanie L. Pate, Esq.

The Internal Revenue Service has traditionally permitted the value of closely-held or family-owned businesses to be discounted for such things as the lack of marketability, lack of transferability, and lack of voting rights of the business interest when transferring closely held business interests to family members, either by gift during life or at death.

These valuation discounts can range from 10 to 60 percent and significantly reduce the Federal estate tax and state death taxes on transfers at death and the Federal gift tax on transfers during life.

The Internal Revenue Code permits the Treasury Department to restrict these discounts. Lawyers for the Treasury Department have indicated that proposed regulations could be released as early as September 2015 and are expected to significantly curtail or even eliminate these discounts. It is likely that any transfers after the proposed regulations are issued would be subject to the new rules, even though the regulations may not be finalized for months or even years after being issued.

To avoid negative gift and estate tax consequences, any transfers of interests in family-owned entities should be contemplated before the proposed regulations are issued.

Please contact the Estates and Trusts Practice Group at Leech Tishman to discuss the potential impact of the proposed regulations as well as the options that may be available to you.

David J. DelFiandra is a partner in the Estates & Trusts Practice Group. He can be reached at 412.261.1600 or ddelfiandra@leechtishman.com. Stefanie L. Pate is an associate in the Estates & Trusts Practice Group. She can be reached at 412.261.1600 or spate@leechtishman.com. Please feel free to contact Dave or Stefanie with any questions.

Leech Tishman is a firm dedicated to providing full-service commercial legal services to individuals, businesses, and institutions. We combine a deep understanding of our clients and their businesses with skilled legal counsel to find solutions. Leech Tishman offers legal services in alternative dispute resolution, bankruptcy & creditors’ rights, construction, corporate, employee benefits, employment, energy, environmental, safety & toxic torts, estates & trusts, government relations, immigration, insurance coverage & corporate risk mitigation, intellectual property, international legal matters, litigation, real estate, and taxation. Headquartered in Pittsburgh, PA, Leech Tishman also has offices in Chicago, Los Angeles, New York and Wilmington, DE. For more information call 412.261.1600 or visit us at www.leechtishman.com.