Treasury building in Washington.

The Internal Revenue Service withdrew on Tuesday proposed regulations that would have altered the way that certain property is valued for estate and gift tax purposes.

The IRS withdew the regulations under Section 2704, which is ”a regulation that the IRS and Treasury proposed last year before Trump was elected,” Beth Shapiro, an attorney with Kaufman Caplin & Drysdale, told ThinkAdvisor in a Wednesday interview. 

As part of the regulatory review ordered by Trump, the IRS concluded the regulation should be withdrawn. Section 2704 ”has to do with how you value business interests that are transferred for estate or gift tax purposes,” Kaufman said. “It’s just one of many issues that could arise that affects the estate tax.”

Treasury Secretary Steven Mnuchin announced on Oct. 4 that Treasury “continues to work to identify additional regulations for modification or repeal by evaluating significant regulations issued recently and initiating a comprehensive review of all regulations, regardless of when they were issued.”

The comprehensive review, Mnuchin said, “has already identified over 200 regulations that Treasury believes should be repealed,” which will begin in the fourth quarter of 2017.

On Oct. 2, Treasury released a report on the eight tax burdens that it wants to eliminate, which included Section 2704.

Treasury plans to withdraw proposed regulations under Section 2704, on Restrictions on Liquidation of an Interest for Estate, Gift and Generation-Skipping Transfer Taxes, which address the valuation, for wealth transfer tax purposes, of interests in family-controlled entities.

Mnuchin argued that the plan “would have hurt family-owned and operated businesses by limiting valuation discounts,” adding that the regulations “would have made it difficult and costly for a family to transfer their businesses to the next generation.”

Commenters on the plan “warned that the valuation requirements of the proposed regulations were unclear and could not be meaningfully applied,” Mnuchin said.

In limited cases, he added, Section 2704 “disregards restrictions on the ability to liquidate family-controlled entities when determining the fair market value of an interest for estate, gift and generation-skipping transfer tax purposes.”

The plan also includes the withdrawal of proposed Section 103 regulations to apply to the definition of political subdivision.

The proposed regulations, Mnuchin said, “would have added new requirements to be considered a ‘political subdivision’ for purposes of issuing tax-exempt municipal bonds.” The new requirements “would have imposed enhanced standards to show a governmental purpose and governmental control. The changes proposed by the regulations would have been costly and burdensome,” he argued.

The Treasury report also identified the following regulations to consider for “substantial revision”:

• Temporary Regulations under Section 337(d) on Certain Transfers of Property to Regulated Investment Companies and Real Estate Investment Trusts. Treasury and the IRS plan to propose to replace the temporary regulations with revised regulations designed to narrow their application.

• Final Regulations under Section 367 on the Treatment of Certain Transfers of Property to Foreign Corporations. These regulations, which eliminate the ability to transfer certain property to foreign corporations without immediate or future U.S. tax, address issues that could also be addressed as Treasury continues to work with Congress on fundamental tax reform. In order to protect the U.S. tax base in the meantime, Treasury plans to continue to implement these regulations. However, Treasury and the IRS also plan to develop exceptions to the regulations.

While the House is out this week, the Senate is in session and began debate Tuesday on its fiscal 2018 budget resolution, which Senate Budget Committee chairman Mike Enzi, R-Wyo., said is “focused on providing Congress with the tools it needs to enact tax reform.”

After years “of stagnant growth, it is clear that the nation needs a simpler, fairer and more transparent tax system that will leave more dollars in the pockets of hardworking families,” Enzi said Tuesday in a statement.

The Senate began debating its budget blueprint, which Enzi said is crucial for Congress to approve “in order to eliminate the dated and stifling tax policies that are holding back our nation.”

Enzi argued the Senate budget sets the stage “for pro-growth tax reform that will lower taxes on American families and job creators by a net $1.5 trillion over 10 years.”

— Check out 5 Things to Know About Valuing Annuities and Other Client Assets on ThinkAdvisor.