Report on proposed regulations under sections 2701 and 2704 of Internal Revenue Code re: valuation of interests in family-owned entities for estate, gift and generation-skipping transfer tax purposes

SUMMARY

The Estate and Gift Taxation Committee (Evelyn M. Capassakis, Chair) submitted a report in response to the IRS and Treasury Department’s notice of rulemaking and public hearing regarding proposed regulations under sections 2701 and 2704 of the Internal Revenue Code. The proposed regulations address the valuation of interests in certain family-owned entities for estate, gift and generation-skipping transfer (“GST”) tax purposes.  The report expresses concern that, in issuing the proposed regulations concerning “disregarded restrictions,” the Treasury has exceeded its rulemaking authority under section 2704(b)(4) and, furthermore, that it has not performed adequate fact-finding to support its conclusive presumption that certain restrictions will never reduce the value of a transferred interest to a transferee.  The report also provides information and analysis regarding the nature of the federal estate, gift and GST taxes and the legislative history and structure of section 2704.  Assuming adoption of the proposed regulations is within the scope of the relevant regulatory authority, the report requests additional guidance and suggests possible improvements.