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      Estate Planning, Wealth Planning

      Post Election IRC Section 2704 Update

      As we have discussed over the past few months, the Section 2704 proposed regulations may have a profound impact on estate and wealth planning.  To recap, the proposed regulation would mitigate or eliminate valuation discounts when transferring or gifting ownership interests to family members.  Uncertainty and opportunity still exist given the current political environment and election outcome.  

      November 2nd Comment Deadline Has Passed

      Comments on the proposed regulations by concerned stakeholders needed to be provided to the IRS by November 2, 2016.  According to the US Treasury website, a total of 9,762 comments were received from individual taxpayers, family businesses, attorneys, wealth planners, valuation practitioners and valuation professional organizations (VPOs).  The VPOs have a number of individuals scheduled to testify including representatives from the National Association of Certified Valuators and Analysts (NACVA).

      In addition, NACVA filed a comment letter on October 27, 2016 which recommended and requested the following revisions to the proposed regulations: 

      1. That the existing definition of fair market value be retained and that the term minimum value not be adopted in the final regulations.

      2. That the assumed six month repurchase obligation be excluded from the final regulations since it is not based in any way upon market reality.

      3. That the standard of value for estates and gifts continue under the definition of fair market value, with appropriate discount for lack of control and marketability where appropriate.

      4. That the definition of control be redefined to comply with business valuation and legal principles as "more than 50%" instead of "at least 50%."

      5. That these proposed regulations be consistent with Stare Decisis and the liturgy of prior United States case law.

      6. That under no circumstances, should these proposed regulations apply to businesses whose income is derived from operations as opposed to simply the holding of assets.

      For a copy of NACVA's comment letter, send an e-mail request to 

      Next Step For Section 2704 Battle In December

      The US Treasury and IRS will hold a public hearing on December 2, 2016 in Washington DC to discuss any comments and then finalize the new regulations.  According to Business Valuation Resources (BVR), a number of representatives from various VPOs, which include the ASA, the AICPA and the NACVA, will testify.  Testifying for the NACVA are Peter Agrapides (Western Valuation Advisors), Robert J. Grossman (Grossman Yanak & Ford LLP), Mark Hanson (Schenck SC), and Robert M. Weinstock (Strategic Valuation Group).  It is assumed that the regulations will be finalized and that enactment would take place 30 days after the public hearing.

      Uncertainty and Opportunity

      Although potential impacts to family owned businesses could be significant, uncertainty exists as to whether the proposed regulations would be enacted in the current form.  According to Blanche Lark Christerson at Deutsche Bank, the US Treasury:

      • “believe(s) the regs have been misunderstood…[and] are designed to address valuation abuses by negating discounts” and, 

      • “seems to acknowledge that the proposed regs need modification (or at least clarification), and does not intend to rush out the final version of the regs”.

      There is still time to determine whether the usage of valuation discounts when transferring or gifting ownership interests to family members would be beneficial.  At a minimum, business owners should take the opportunity to discuss the potential impact of the proposed regulations with their estate planning attorneys and valuation experts.  In certain cases, the usage of valuation discounts in wealth transfer may be the right approach at this time.  

      If you are interested in more information, please contact us. 

      We hope you enjoyed reading this issue of Business Valuations Letter. Whether you are planning your estate, settling a dispute or selling/buying a business, it is critical to have a sound, professional valuation opinion from a firm that will stand behind its conclusions. Lenders, insurers, the courts and government agencies are increasingly insisting on expert opinions to support claims where value is concerned.

      Brinker Simpson's expert valuation consultants specialize in providing confidential business valuation services for closely-held and family owned companies, professional practices and partnership interests. We will work directly with you or one of your other trusted business advisors.

      Whether you're planning for the future or dealing with a situation at hand, through careful analysis we will develop an independent, unbiased valuation report for your business. 

      For any questions regarding this newsletter or any valuation issues or concerns you may have contact our leaders of valuation services who are members of The National Association of Certified Valuation Advisors and Analysts (NACVA):

      Michael Simpson, CPA, CVA

      Albert A. Lazo, MBA, CVA



      Tagged: Estate Planning, Wealth Planning


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