Action steps to take now over Sec. 2704 regs

BVWireIssue #168-2
September 21, 2016

“Weird logic,” “make-believe,” “bad timing,” and “new definition of FMV” are just some of the comments about one of the most discussed topics at the ASA Advanced Business Valuation Conference last week in Boca Raton, Fla. Of course, we’re talking about the proposed IRC Section 2704 regs designed to curb estate tax valuations. The regs came out after the conference schedule was set, so a special early-morning session was added to the program. Even though it was the wee hours, the session was well attended and the audience was totally engaged. Speakers urged attendees to:

  • Understand the regs. This is difficult to do, as even the top tax lawyers in the country “can’t agree on what these regs really mean,” says William Frazier (Stout Sirius Ross). He presented an example that showed that, under the new rules, the tax bill for estate and gift taxes might rise by up to 50%. Bruce Johnson (Munroe, Park & Johnson) says that the regs would provide a disincentive for family transfers. “The regulations would create a two-tiered tax system where a family-owned business would pay higher taxes on transfers than a 3rd-party owned business,” he says. “As a result, family businesses might be forced to sell or take on debt to pay the additional tax burden.” Johnson is on an ASA task force studying the regs and preparing official comments. BVWire’s prior coverage (latest is here) has more information and links. Also, BVR will present a webinar on September 29 with Curtis Kimball (Willamette Management Associates) and Z. Christopher Mercer (Mercer Capital).
  • Craft comments to the IRS. “Comments really matter,” says Jeff Tarbell (Houlihan Lokey), who says that what the valuation profession is facing is akin to the battle with the DOL over classifying appraisers as fiduciaries for ESOPs. After a concerted effort by the valuation profession, the DOL backed off of that proposal. Tarbell was involved in the DOL matter and is also on the ASA task force. The ASA will shortly make a template available with some suggested points to make in a comment letter. The regs have instructions for submitting comments (due November 2).
  • Write to Congress. Contact your congressperson, especially those on the Senate Finance Committee or House Ways & Means, which have oversight of the IRS. Speakers noted the “bad timing” of the regs in this regard, due to the changes in Congress by election time.
  • Contact the SBA. John Russell, the ASA’s director of government relations, says the Small Business Administration wants to hear about the impact on family businesses, which could be “devastating,” say the speakers. The SBA needs to voice its concerns, so contact Dillon Taylor at the SBA’s Advocacy in Washington, D.C., at 202-401-9787 or
  • Reach out to clients. Speak with clients who have family-owned entities that these rules would affect. If these entities can currently be discounted for transfer tax valuation purposes, make sure clients understand the implications and consider doing some planning in advance of the regs being finalized. Of course, they may never be finalized, but planners are assuming they will.

BVWire congratulates the ASA on an excellent conference, and we will have more takeaways next week!

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