J. Kelly Kennedy, Attorney/CPA, PLLC

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Attorney and CPA

IRS proposal could have tax implications

State and federal lawmakers are constantly coming up with new legislation that covers a wide range of important issues. Likewise, certain governmental agencies review existing regulations and look for ways to improve the particular area of law or function that they oversee. The IRS is one such government agency, and when it pushes through new regulations, millions of people could be concerned about how those changes might impact them.

Recently, the IRS proposed new regulations that could affect people in Lakeland and Winter Haven who own closely-held businesses. The regulations would limit or eliminate the valuation discount that people use when transferring an ownership stake in this type of business, which by definition, has a small number of shareholders.

The idea of this valuation discount is that in a closely-held company, a minority ownership interest may not really be worth as much as the market value of that share of the business. This is because the minority ownership holder cannot make certain business decisions without approval from the other owners. For example, if four people each own 25 percent of a business, none of the four, by themselves, could decide to sell the entire business.

Minority owners of closely-held businesses cannot make important business decisions without first convincing some of the other shareholders to go along with them. Thus, the IRS allows such owners to discount the value of their ownership interest when transferring it to beneficiaries. However, the IRS is now proposing to change the rules that apply to this kind of discount valuation.

This IRS proposal is just one example of how a changing legal landscape could have tax implications on a person's estate plan. Accordingly, people should understand that they should review their estate plan and make necessary revisions as their life circumstances change, and as the legal environment changes.

Whether a person is looking to transfer a business interest, or any other asset, an experienced estate planning attorney can help them implement strategies and advanced estate planning tools to efficiently carry out the plan.

Source: The National Law Review, "IRS Targets Popular Estate Planning Technique," Robert A. Mathers, Aug. 29, 2016

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