Valuation Vantage - Fall 2016

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Insights and perspectives on leading corporate finance valuation issues.
IRS Issues Proposed
Regulations Restricting
Valuation Discounts for Family-
Controlled Entities
Fall 2016
Inside This Issue
I. IRS Issues Proposed
Regulations Restricting
Valuation Discounts
for Family-Controlled
Entities.........................1
II. Simplifying Goodwill
Impairment Accounting..3
III. Clarifying the Definition
of a Business................4
IV. Recent Changes to
Market Participant
Acquisition Premium
Guidance.....................6
V. Dell Undervalued in Sale
Process........................7
VI. Practice Highlights.....10
continued
On August 4, 2016, the IRS issued
proposed regulations to restrict valuation
discounts for estate, gift, and generation-
skipping transfer taxes.
BACKGROUND
Internal Revenue Code (“IRC”) 2704
originally provided special valuation
rules for interests in family-controlled
corporations and partnerships transferred
for estate, gift and generation-skipping
transfer tax purposes. The IRS allowed
discounts if voting and/or liquidation
rights were eliminated upon transfer.
However, the IRS recently released new
regulations that are based on a stricter
interpretation of IRC 2704.
This may result in discounts for lack of control
and lack of marketability being eliminated or
reduced for family-controlled operating entities
and not just family-controlled entities comprised
of passive assets (such as stocks, bonds, and
other marketable securities).
MAIN PROVISIONS OF PROPOSED
REGULATIONS
The IRS proposed the following regulations
to eliminate or reduce discounts for lack of
control and lack of marketability for transferred
ownership interests:
1. A restriction on the ability to liquidate an
individual interest is not an applicable
restriction.
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