Possible New Limits Coming to Gift and Estate Discounting

Possible New Limits Coming to
Gift and Estate Discounting

It has long been a practice to discount the value of gift and estate transfers for lack of control and marketability. This discounting significantly increases taxpayers' ability to transfer assets by reducing the value of the transfer. This discounting is used for transfers of limited partnership interests in family limited partnerships (FLP) that only have marketable securities or real property as well as interests in closely held businesses. It is very common for the Internal Revenue Service (IRS) to challenge these discounts.

The IRS is planning to further crack down on this practice soon. In the next few weeks, we expect to see new regulations that will reduce the availability of these discounts. The IRS's primary target will probably be FLPs that hold only securities; however, families operating businesses may also face restrictions on the discounts that have helped to ease the transition to the next generation, which could affect succession planning.

Right now it looks as though the new restrictions on discounts will not be applied retroactively. So if you have been considering transferring part or all of your stake in a family business or other discountable assets it may make sense to take that step now, before the new regulations take effect. While we expect that the new regulations will be challenged in court, we may not know the results for years.

For more information on the pending regulations limiting discounting of privately held shares, please contact Gray, Gray & Gray at (781) 407-0300.

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Gray, Gray & Gray, LLP
781.407.0300

www.gggcpas.com

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