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“IRS Issues Proposed
Regulations...”
continued
Valuation Vantage
Fall 2016 | 2
2.
Voting and liquidation restrictions in a family-controlled
operating entity are disregarded in the absence of
applicable state law.
3.
A nonfamily member interest is disregarded if it is a less
than 10% equity interest in a corporation. This would
result in a family member interest that is close to 50%
ownership being considered to have control in the
corporation.
4.
Nonfamily member interests, collectively, are disregarded
if they are less than 20% of equity interests in a
corporation. This would also result in a family member
interest that is close to 50% ownership being considered to
have control in the corporation.
5.
A nonfamily member interest’s lack of a put right is also
disregarded as a liquidation restriction.
6.
Liquidation rights are eliminated if transfers are
performed more than three years before the decedent’s
death. This eliminates the incentive to make transfer
ownership interests close to the decedent’s death.
7.
Any liquidation restrictions on interests in family
controlled entities would be disregarded by the IRS if these
restrictions lapse after these interests are transferred to
family members.
KEY TAKEAWAYS
The proposed regulations are expected to receive extensive
feedback. There is a public hearing on December 1st. In
general, there is immense pushback regarding its argument that
liquidation restrictions should be disregarded, which may result
in significantly lower discounts. Many advisors are pushing their
clients to complete any transfers before the new rules take place.