S-Corp Submits Valuation Comments

Yesterday, the S Corporation Association submitted its formal comments to the IRS on the pending Section 2704 valuation rules.  You can read all 15 pages of comments here, but the basic message of the submission was that Treasury should discard this effort and start over.  As the comments conclude:

Promulgation of the Proposed Regulations in their current form and scope will generate significant uncertainty and constitute a significant impediment for the continuity of family-controlled businesses.  The Proposed Regulations inappropriately and illegally discriminate against family controlled businesses in form and effect.  If Treasury is inclined to promulgate regulations to address perceived abuse, those regulations should be targeted in scope, capable of reasonable application and administration, and consistent with Congress’s intent, as set forth in § 2704 and the legislative history of Chapter 14.  The Proposed Regulations do not satisfy any of those conditions.

The comment period for these proposed regulations doesn’t end until November 2nd, but already Regulations.Gov reports there have been more than 3200 comments submitted, with many more expected prior to the deadline.  The NFIB-NAM letter to Treasury Secretary Jack Lew had more than 3800 signatories, so this issue is getting people’s attention.

Meanwhile, Treasury Officials continue to speak to groups and make the following two points:

  • The proposed rules are not nearly as far-reaching as what outside experts have reported; and
  • It is highly unlikely that the IRS and Treasury will be able to finalize these rules prior to the end of the Obama Administration.

We take these points seriously, but are still left with the reality of what Treasury proposed back on August 2nd.  As our comments make clear, what Treasury printed in the Federal Register is a very broad proposal that would largely eliminate the consideration of control and marketability for a wide swath of family businesses when valuing them for gift and estate taxes.  The result goes well beyond what Congress enacted back in 1990 and would be a significant hike in taxes on those family businesses, leading to fewer family businesses and a further consolidation of economic power with large, publicly-traded companies.

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