Legal Blog

New IRS Rules Impacting Gift Planning and Valuation Discounts

From The Desk Of Herb Fineburg

giving moneyIn light of proposed changes to IRS regulations, It is recommended that you complete your family gift plans before the end of this year.

For decades the IRS has argued that valuation discounts in related-party transfers for family owned entities were constructed solely to avoid paying gift taxes, as well as estate and generation-skipping transfer taxes. Earlier this month, the IRS proposed regulations which will limit the ability to take commonly used valuation discounts when appraising interests in family-owned companies transferred to your heirs who are family members.  

For example, if you have a life-time exemption amount of $5.0 million, using a 30% discount allows you to transfer tax-free $7,142,857 of wealth. Because the 30% valuation discount on $7,142,857 is $2,142,857, the resulting reportable gift is just $5.0 million. The additional estate tax savings to your family is $857,143 on the $2,142,857 discount. In addition, all subsequent appreciation is removed from your taxable estate.

The discounts are used for outright gifts as well as estate freeze sales to grantor trusts.

Fortunately, it is reported that the new regulations will only apply to transfers after the regulations are published and become final. This is not likely to occur until next year.

Please feel free to contact us with any questions you may have.


Herbert A. Fineburg, a firm shareholder and co-managing principal of the firm’s Philadelphia office, concentrates his practice in the areas of Business Law and Transactions, Mergers and AcquisitionsEstate planningEstates and Trusts,  and Tax Consulting. He is recognized as one of Philadelphia’s most respected business lawyers whose substantial knowledge of tax law provides clients with strategic and cost-saving benefits in connection with commercial transactions, taxation and wills, trusts and estates matters. Known for his ability to resolve complicated matters effectively, Mr. Fineburg has assisted businesses and individuals with the organization of their finances, business and real estate affairs, and the structure of their assets (i.e., in LLCs, partnerships, corporations, trusts or joint ownership). He has substantial expertise in the preparation of buy-sell agreements for co-owners who are family members or are unrelated business partners. In addition, to working on bank financings, business contracts and employment matters for his business clients, Mr. Fineburg also provides advice on business acquisitions and sales, and the resolution of shareholder and partner disputes and buy-outs.


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