By Henry C. T. (Tip) Richmond, III

One year ago in this space I advised that although talked about for years but never accomplished, the IRS was expected to issue new rules under Section 2704 of the Internal Revenue Code late this summer that would cause certain restrictions to be disregarded in determining the value of a transfer (during lifetime or at death) of an interest in a family-controlled business entity (e.g., an LLC, partnership or corporation). The ability to use restrictions to reduce the value of an interest in a family business for lack of marketability and/or control for gift, estate and generation-skipping transfer tax purposes has been a significant tool for estate planners for years. These regulations, if and when final, would limit, if not end, this highly effective strategy. The message to clients then was to make their gifts of interests in family-controlled business entities sooner rather than later.

Well, that eagerly awaited day has come! The IRS released proposed regulations on August 2nd. There is a 90 day comment period and a public hearing scheduled for December 1st of this year. The regulations are proposed to be effective 30 days after the date the Treasury Department publishes them as final in the Federal Register. In light of expected significant written comments and lively discussion at the December 1sthearing, most experts do not believe the regulations will become final until sometime in 2017.

A more detailed summary of the regulations will be found in a DW Client Alert that you are encouraged to forward to your clients and prospective clients who could be negatively impacted by these very significant changes in the transfer tax laws. Of course, lawyers in the tax and trusts and estates practice groups stand ready to assist you and your clients.

For more information, please contact Henry C. T. (Tip) Richmond, III in our Lexington, Ky. Office at 859-899-8712.