Proposed Changes to Impact Business Valuations & Gift Tax Planning for Family Businesses

With the publication of Revenue Ruling 93-12 in January 1993, the IRS retreated from its prior position when gifts of closely held business interests were made between family members. The announcement of this Revenue Ruling opened the gates for a “minority interest discount” when less than a controlling interest in a closely held company was gifted or otherwise transferred to a family member.

The typical use of a minority interest discount was to reduce the value of the gift to a family member for gift tax purposes and at the same time reduce the taxable estate of the donor, who was typically the older generation of the family. This discount has been used to save taxpayers an untold amount of gift and estate taxes since the enactment of the Revenue Ruling.

However, the Internal Revenue Service and the Treasury Department have been working to change this paradigm and it looks like they are ready to begin the process of announcing the new regulations. Once this is done, the clock will be ticking for use of a minority interest discount (and possibly other discounts) as a gift and estate planning tool. As a result of these to be published rule changes, taxpayers may want to consider making gifts of ownership in a closely held business to family members while discounting is still allowed.

Our estate tax and business valuation professionals are ready to assist you with any questions. We can be reached at 410-828-2727.

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