Thousands of family businesses signed a letter this week calling on the Department of the Treasury to withdraw proposed regulations that target family businesses for sharply higher gift and estate taxes.
Getting that many private companies to weigh in on a public issue like this one is simply astounding, and should serve as an indication of just how threatening these regulations are to the ability of family businesses to survive from one generation to the next. As Law360 reported on the letter:
NAM released a letter with more than 50 pages of signatures urging Lew to pull the proposed regulations, which tax practitioners and estate planners have been quick to reprove for purportedly ignoring the economic realities of transferred interests in closely held businesses.
The regulations, which were announced in early August, will have a detrimental effect on family-owned businesses because they could increase estate and gift taxes by 30 percent or more, divert capital from business investment, threaten jobs, and force families to sell their businesses to outsiders, Wednesday’s letter said.
“These proposed regulations would throw the succession and estate planning of thousands of family-owned manufacturers into disarray, increase tax bills and impose additional planning and legal costs on these businesses, drawing valuable resources away from the ability of family businesses to grow, invest and create jobs,” NAM said. “It is critically important that Treasury withdraw these ill-conceived regulations as soon as possible.”
The letter was released during a week full of activity on the valuation issue. Senator John Thune (R-SD) also released a letter calling on Treasury to pull back the proposed rules. Signed by 41 Senators, including numerous members of the Finance Committee, the letter follows a similar communication authored by Thune last year and makes clear the policy challenge posed by the draft rules:
Treasury should pursue policies that encourage the creation and growth of family businesses and not propose regulatory changes that make it more difficult and costly for families to transfer ownership to future generations. We thus request that Treasury withdraw the proposed regulations and ask that any regulations that Treasury may issue in the future more directly target perceived abuses in the valuation of transferred interests in family businesses.
Meanwhile, legislation has been introduced in both the House and the Senate to block Treasury from finalizing the proposed rules. Sponsored by Congressman Warren Davidson (R-OH) in the House and Senator Marco Rubio (R-FL) in the Senate, this legislation objects to the underlying premise of the proposed rules and prohibits Treasury from taking action to make them final. The House bill was introduced just last week, but already has more than 60 cosponsors.
S-Corp plans to spend October meeting with Hill offices and building support for the two bills. With Congress coming back in mid-November, the challenge will be to build sufficient support on this issue to compel the House and Senate to take action before the end of the year.
You can help. The NAM letter has already been sent, but the official comment period is open until November 2nd, so trade groups and family businesses still have the ability to weigh in on this issue. If you would like to comment, click here and file your comments! The more Treasury hears from the business community on this issue, the less likely they will be able to finalize the harmful rules as drafted. It’s that simple.