This morning, more than 90 trade associations representing millions of individually- and family-owned businesses sounded the alarm on the proposed changes to grantor trust and valuation rules in the Build Back Better Act (H.R. 5376) and called on lawmakers to reject these provisions.
The letter builds on a prior S-Corp letter sent last week, focusing on the adverse impact these proposed changes would have on family businesses nationwide. Regarding Grantor trusts, the letter reads:
The changes related to the taxation of grantor trusts would eliminate the usefulness of the grantor trust for normal and legitimate business (non-tax) purposes, such as facilitating the transfer of business ownership between generations and protecting assets from liability or creditor claims of a trust beneficiary.
Worse, these new rules would unfairly punish taxpayers who relied on decades-old laws and Internal Revenue Service guidance to establish estate plans to transfer family businesses to future generations, threatening the viability of thousands of family businesses across the country. In some cases, these plans have been in place for decades, and it is simply unfair for Congress to step in and retroactively change them now, just when they are to be called upon to help with the transfer of a family business from one generation to the next.
On changes to the valuation rules, the letter focuses on the impact those changes would have on family businesses:
In a similar vein, the changes related to the valuation of interests in entities holding so-called “passive assets” (including real estate) are unnecessarily overbroad. They undermine the settled principle that property is valued for transfer tax purposes at its “fair market value” by imposing tax based on a value greater than fair market value when non-controlling or non-marketable interests are transferred.
The changes broadly apply to all interests in any entity holding “passive assets,” whether or not the interest owner can actually access a proportionate share of those assets, whether or not the amount paid by the interest owner to acquire the interest was significantly less than a proportionate share of the assets of the entity, and whether or not the transferor or transferee have any control over the entity. As such, the changes unfairly impose transfer taxes on “phantom assets” and “phantom value” that an owner of the interest often has no ability to access. If enacted as drafted, family farms, ranches, and operating businesses across the country would be harmed.
Proponents of the House bill claim they would ensure billionaires “pay their fair share.” In reality, family-owned businesses of all sizes would bear the brunt of these tax hikes, threatening their ability to stay family-owned. That’s bad for these businesses, and bad for America.