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Window of Opportunity May Soon Be Closing for Discount-Based Estate and Gift Tax Planning Techniques

For several years, the IRS and the Obama Administration have let it be known that they were seeking ways to limit the use of valuation discounts for closely held business interests, including interests in family investment partnerships and limited liability companies, to reduce exposure to federal gift and estate taxes for transfers of such interests. Last year, they specifically targeted the regulations related to Section 2704 of the Internal Revenue Code as a way to further this goal. This week, the Treasury Department released Proposed Regulations that would expand the scope of the statute to cover different types of business entities, redefine certain terms to enhance the impact of the statute, and impose certain standards that will make planning around the statute more difficult.

While the impact of these Proposed Regulations will be better understood over time, what is clear right now is that they will not go into effect until Final Regulations are published. The first hearing on the Proposed Regulations is currently scheduled for December 1, 2016, so the Final Regulations will not be published until at least 30 days after that date. Accordingly, there is a valuable window for the next few months to put in place planning structures that take advantage of the current state of the law.

We remain available and ready to assist clients and advisors in understanding these new proposed rules and in implementing discount-based strategies before the end of the year. Stay tuned for updates on this major tax development in the coming weeks.

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