Potential U.S. Treasury Regulations on Discounts and Practitioner Concerns

I have received several inquiries over the past two weeks regarding potential changes in Treasury Regulations associated with the elimination of discounts associated with Family Limited Partnerships (FLPs) and family controlled businesses. This article is an example of the reason why others have raised questions with me. Having worked for the IRS 28 years at all levels of management, I counseled my employees when working at the IRS to not be to concerned until a regulation became a temporary regulation or final regulation. Many regulations are considered, some become proposed regulations and some of the proposed regulations become temporary or final regulations.

What do these terms mean?

For an official commentary see this website from irs.gov. I will attempt to provide you with a concise commentary in lay terms. This is not official, but should help those working in this area. A proposed regulation is just that. It is proposed. While it is proposed the public can provide comments to the U.S. Treasury Department and to their elected officials. The IRS may look to the proposed regulation for guidance, but while it is proposed, it is not yet enforceable.

I would suggest to you that if the IRS proposed eliminating the Discount for Lack of Marketability (DLOM) and the Discount for Lack of Control (DLOC) related to FLPs and family owned businesses for estate and gift tax purposes that many interests might petition the U.S. Treasury Department to consider the ramifications of this alternative from a factual perspective. As a result of public venting on the proposed regulations the U.S. Treasury Department could withdraw the proposal, modify the proposal or implement the proposal. If the proposed regulations were modified they could be proposed again. If implemented the regulations could be implemented as temporary regulations or final regulations.

Temporary regulations are enforceable for the time period identified as temporary until final regulations are implemented. Final regulations are the final regulations that are enforced by the IRS.

Given inference and innuendo with respect to what the U.S. Treasury Department may or may not propose, those practitioners consulting in the area of valuation, tax planning, tax advice and conflict resolution with the IRS need to wait and see what if anything may be forthcoming from the U.S. Treasury Department, and where there is an interest provide feedback to various elected officials and to the U.S . Treasury Department with respect to any concerns raised by any proposed regulations. It has been my experience that our democratic process has a direct impact on proposed regulations from the U.S. Treasury Department.

My intention here is to share my own insights and to provide some perspective of potential concerns by various parties. I have a passion to learn and to share what I have learned. I hope this concise commentary provides you some insight to allow you to plan for what if any actions you and your organization may deem appropriate.