The Main Street Employers coalition sent a letter to congressional tax writers yesterday opposing the proposed rules on estate valuations and calling on Congress to weigh in with Treasury on the issue. From Politico:
The business community is escalating its efforts to beat back new Treasury regulations on the estate tax, which have somewhat fallen under the radar due to all the attention given to the Section 385 earnings stripping rules. A coalition called Parity for Main Street Employers sent leading congressional tax writers a letter asking Congress to urge Treasury to pull back rules that would make it harder for wealthy taxpayers to pass on a family business without paying estate or gift taxes. ” The impact of Treasury’s proposed changes should trouble Congress. Their attempt to legislate through regulation should be equally concerning. There is nothing in the statute or the legislative record to indicate Congress intended Section 2704 to be as broadly applied as the proposed rules suggest,” wrote the group, which includes the Independent Community Bankers of America, the National Association of Wholesaler-Distributors and the S Corporation Association.
Just a point of clarification – this isn’t about not paying estate taxes, it’s about paying more than you should owe. At issue are whether family businesses should be valued in the same manner as every other business, or in an alternative manner that artificially inflates what they are taxed on above fair market value. As the letter states:
The proposed regulations under Section 2704 target family businesses for higher estate and gift taxes, merely for being family-owned businesses. They would raise these taxes by largely eliminating the consideration of lack of control and lack of marketability when determining the fair market value of an interest in a family owned business, but only when that interest is passed on to a member of the family. Lack of control and lack of marketability are real economic factors that can reduce the fair market value of an asset by a sizable amount, so the proposed rules would have the effect of increasing the applicable estate and gift taxes by 30 percent or more.
The challenge for the business community is the short legislative window. There’s lots of interest on the Hill in responding to these rules, but very little time for Congress to take action. They leave town sometime next week and don’t come back until after the election. In the meantime, the official comment period for the rule will end on November 2nd. So if Congress is going to act, it will have to get moving.
Another S Corp Mod Provision In Play!
On Wednesday, the Senate Finance Committee approved the Retirement Enhancement and Savings Act by a unanimous vote and forwarded it on to the full Senate for consideration. Thanks to the urging of S-CORP Senate champions John Thune (R-SD) and Ben Cardin (D-MD), a modified version of an S Corporation Modernization Act provision was included in the final package.
This provision would expand the ability of S corporation banks to have IRA shareholders. Twelve years ago, Congress adopted a previous provision, but limited its application to banks that already had IRA shareholders as of October 22, 2004. This new provision enables even more community banks to become S corporations and helps to level the playing field in that industry.
Now that the pension bill has been reported from the Committee, the goal is for provisions from the bill to be included in one of the end-year vehicles the full Senate will consider. With unanimous committee passage, these provisions now have the support of over one quarter of the Senate. So, we will continue to monitor the progress of these reforms.