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As part of the regulatory review ordered by Trump, the IRS concluded the regulation should be withdrawn.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.”
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The comprehensive review, Mnuchin said, “has already identified over 200 regulations that Treasury believes should be repealed,” which will begin in the fourth quarter of 2017.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.”